Intrusion Inc Aktie

Welcome to Intrusion, Inc.'s Special Update Call. [Operator Instructions] 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 of Intrusion; Kimberly Pinson, Chief Financial of Intrusion; Bobby Mikkelsen, Chief Executive AI Agent of VigilAigent; and Mark Porter, Chief Revenue Officer of VigilAigent. 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 statements made during this conference call relating to the company's expected future performance, future business prospects, future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the 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, and we make no undertaking or no obligation to update these statements as a result of 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.

Thank you, Josh. And I wanted to say, first of all, welcome Bobby Mikkelsen, Mark Porter and Kim with me here on the call today. We've been working with the VigilAigent team for a couple of months now. And as we've gotten to know them and also the technology that they have put together, we've gotten more and more excited about the possibilities of these two teams working together. So as you saw from our press release last night, we've completed the acquisition of VigilAigent, which is a cybersecurity managed service security provider from Tego Cyber.

It's a done deal. It's not pending, although we'll have a -- we acquired 60%, and we'll acquire the remaining 40% later in August, pending shareholder approval of a proposal that we'll have for our annual meeting. You might want to know why this and why now. What I would tell you is that AI is completely reshaping the cybersecurity landscape.

It's lowered the cost, the expertise and the time needed to launch sophisticated, scalable attacks by the bad guys, and we're seeing it every single day. And customers need solutions that get ahead of those threats. And with this acquisition, we will deliver to the market exactly that capability. The same things that are helping the threat actors be more quick and responsive are tools that we can use in our defensive capabilities.

And so all of this is a natural evolution and a meaningful step for both attackers and also those who are defending. In terms of the deal, it immediately adds about $3.5 million in annual recurring revenue from a diversified base of multi-year customer contracts. This is recurring, not contract revenue and not one-time. And as I think our long-term shareholders know, we've been trying to build that ARR now for more than a year with, in our case, somewhat limited success, but this gives us a brand-new vehicle for reaching a whole bunch of new customers that we've not been able to reach before.

They also bring an established commercial network, 80-plus reseller partners and 1,000 customers. So it's an instant expansion of our commercial reach and distribution. And because the deal is closed, the benefits are immediate. Top line contribution and reach begins day 1. And we also plan to, for commercial purposes, take all of the Intrusion Shield assets and sell those through the VigilAigent team and reach and marketing.

So you'll see some reconfiguration of how we go to market with our commercial efforts for Shield. We will still continue to deal with the U.S. federal government and our consulting work that we do through Intrusion, but both organizations, both VigilAigent and Intrusion will benefit from this combination. And I should say we're planning on VigilAigent operating as a unit, a business unit within the Intrusion framework.

The technology story, I think, is exciting. As Mark will explain in a lot more detail, their Agentic AI engine called The Oracle is now going to be integrated with our TraceCop database. We've done some preliminary work already, and we're really excited about what that can bring to customers of VigilAigent. Each of these are built on years of research and development. One of the benefits of the Oracle that VigilAigent brings is that it automates a high daily volume of threat activity. And then TraceCop adds historical intelligence on the 8.5 billion IP addresses and the information that we have about who the actors are on the internet.

And so the bottom line is faster detection, deeper visibility, more actionable protection and a stronger combined offering than either of us could have delivered alone. And not to mention new revenue streams and cross-sell across our expanded network. So I'm really excited about this. Bobby Mikkelsen and Mark Porter are just fantastic additions to our senior management team, and they'll contribute to our strategy and actions as an organization going forward.

They've already been chock full of just great ideas, and we can't wait to begin execution of those. So the enthusiasm that I have, I can't explain how excited I am about this combination. Let me turn it over to Mark for a little more detail on VigilAigent and the scene from his view. So Mark, over to you.

Thank you, Tony. Appreciate it and appreciate everybody's time here. Very excited to talk about what we're doing. And a little bit. I'm going to keep the technology as high level as possible to try to explain exactly what we're doing while also hitting on how we differentiate ourselves in the market and going forward, what the opportunity looks like. So this is a pivotal point for us as an organization as we look at the future, what started out as very much a me-too managed detect and respond business a number of years ago has evolved over the last 18 months into what is today's current VigilAigent, which is not just a managed and detect business using other people's technology, but a business that has evolved and what we've created is our own security fabric, if you will.

And that security fabric allows us to collect data across customer environments in very meaningful ways with very deep levels of insight. And then more importantly, format that data into the data lake. So as we evolved into that strategy, it means that as we see these events, we see over 1 billion events per day at this point.

As we see these events, that data comes in and is useful to us not just for detecting and responding, but has been really critical in training the Oracle, our Agentic AI solution to understand and analyze events and more importantly, as we tilt forward and leverage the data that we're getting from TraceCop and the Shield technologies that will all be very quickly merged into the OmniViz solution, which is what we call the security fabric, it will give us a level of visibility and usability on that data that starts to allow us to see around corners. As Tony mentioned, Agentic AI and AI in general has changed the landscape in cybersecurity. The legitimate use of artificial intelligence in businesses is no longer an option. It's not people experimenting. People are making multibillion-dollar investments.

Even small businesses are investing in AI. This brings a whole host of new problems, and we can no longer continue to tilt at solving the problems of 10 years ago. We have to solve for the current day problems, which is how to make sure that AI utilization in the business has the proper governance, has the proper detection capabilities, and that requires massive amounts of data and it requires action at machine speed.

So what we have really developed is a solution that allows us to do the detect and response, but our digital workforce technology around the Oracle and a suite of tools that we've built around this fabric from an operator perspective out, we're now fielding inbound demand for that technology for licensing for other purposes for very large enterprises. Other parts of the world have reached out in the last 2 weeks, which leads us beyond that managed detect and response into a more SaaS model or a more licensing-oriented model for that product.

So that's when we talk about the pivot point and the pivotal point we are at, that is one of the key elements. The other thing that's happening here because of the use of Agentic AI and because of what we've leaned into, we find ourselves in a situation where small teams are capable of winning small teams are capable of moving very quickly and developing software at a pace that nobody has been able to do in our lifetimes for sure, and it continues to evolve week over week over week.

So as we look to the future, we look to continue to capitalize on that agility. This gives us a scalability advantage. We don't need nearly the number of people, and we are not talking about -- in our security operations, we're not talking about a humanless security operations center. We're talking -- we talk about [connecting] the humans that we have and making them infinitely more capable.

We look at how to bring revenue to the table faster because each incremental dollar of revenue will now be more profitable as we don't have to scale our headcount linearly. We give you some current examples. We're running right now roughly 10,000 alerts per week that get fully analyzed by the Oracle that costs roughly $700. The rough equivalent in human terms would be $50,000 to $200,000 depending on the time it takes those alerts. We're doing it in under 3 minutes.

We're also then putting that information in a data lake and now able to use every decision made by every tool that we manage and monitor, every tool that we log and every decision made by a human being in our SOC is now indexed back into that data lake. So we're able to do it faster. We're able to do it cheaper. And when we meld the intrusion technologies into the platform, we're going to be able to look at the network layer in a way that nobody else is, and we're going to be able to do a greater degree of network traffic analysis.

We're going to be able to stop more before it gets into the detection mode, which is critical. And all of that context and inference between the 1 billion events a day that we see and the 8.5 billion database, DNS resolutions and IP addresses in that database using historical and real-time is going to allow us to morph that into a large language model that is faster and more accurate and ultimately starts to identify trends in the risk so we can find these things before they happen, find misconfigurations and traffic patterns and look around the corner for our customers because the modern architecture of cybersecurity demands that you identify risk and that you stop it before detection and response.

The use of AI by the adversaries has made the breakout time so short. It's virtually impossible to rely solely on detect and respond. So we're going to continue to evolve those technologies, and we're going to move very quickly. As Tony indicated, we've already done pretty extensive testing, and we're going to move very quickly to minimize the cost of development because we're already doing a lot -- there's already a lot of overlap in where we're going on the technology on the Shield side. We're going to be able to move quickly to bring some of that dev cost down,

increase the cycles, the speed at which we're doing the cycles and move that to market as part of a comprehensive solution, which could help us on both sides of the table, bring our solution, this combined solution to all the existing Intrusion customers outside of FedGov. It's not exactly a FedGov solution. And then conversely do some additive things as we look at AI detection modules and things like that increase our average revenue per seat as we go forward. With that, I will turn it back to Tony.

All right. Well, thanks, Mark. And I've been very impressed. I wish there was a way that we could all do a demo of the VigilAigent technology for all of you. But a couple of things really impressed me. One was the ability to show the operators and even customers how the AI agents are working. So in a lot of cases, people think of AI as sort of this black box that you put something in and then you get something out and you never have any idea how it actually worked. One of the impressive things that the VigilAigent team has done is create some visibility and transparency in terms of what the AI is actually doing and what the costs are.

And I think ultimately, that's going to be important for customers. But probably even more importantly, if you can understand what the AI is doing, you can also correct it when you see mistakes being made. And that's one of the opportunities in the AI space today is having a rich feedback loop. And I think Mark hinted at that so that you can just dramatically improve quality over time with the right kind of feedback.

So really impressive stuff, and we'll love the opportunity to show this to all of you at some point in the future. Let me close my opening remarks here with a couple of points, and then we'll take questions. First of all, I think there's tremendous shareholder value in this deal. It's immediate recurring revenue. It broadens our commercial footprint in a big way, and I think will make a big splash in our target marketplace.

I think anybody who looks at it will see a very differentiated AI platform that we've talked about at some length now and a whole bunch of great cross-sell opportunities and runway going forward. It also puts us on the trajectory for the best opportunity in the future, sustainable growth and long-term profitability. With the tools that VigilAigent brings, we can see a clear path to growth, both organically and inorganically, and we really look forward to that. I think when we have our demo opportunities for customers, they're going to be wowed by the capabilities of the united platform.

And I can't wait to share some of those successes with you on future calls. So I want to thank both Bobby and Mark and the whole VigilAigent team and their investors and our investors on their deep enthusiasm and also help in making this a success. So we'll post this on our website for anybody who wants a replay, but I'm ready to open it up for questions at this particular point. So thank you.

[Operator Instructions]

Your first question for today is from Walter Schenker with MAZ Partners.

Two questions actually. If I understood correctly, Bobby and Mark will be, not regardless of title, in charge of the non-big government opportunities for Intrusion, i.e., Guam or Texas, et cetera. They're going to run or hopefully grow the rest of Intrusion.

Yes. I think the way to think about it, Walter, is our business really falls into sort of two big groups, if you think about it today. One is the commercial space where we have MSPs and MSSPs who are using Intrusion technology, and that's clearly the space where VigilAigent plays a much bigger role than our footprint today. And so I think it makes sense for us to rationalize our offerings in the commercial space and market that and sell that through the VigilAigent sales team and so on.

So we'll reformat our marketing and even our engineering to give us the best opportunity to address the commercial space. On the other side, we have these big consulting contracts like we did in Guam or we're doing for Texas Cyber and so on. And there will be opportunities, obviously, in federal, state and local that are relevant for the VigilAigent team. But most of the government contracting we do are very tailored to specific needs that those specific agencies have and so on. So those will largely remain in Intrusion's hands.

So we've got some work to do to sort out which customers and so on will go with each team. But in general, that's our approach that the commercial stuff, even if it's a state and local government, for example, that's looking for commercial type solutions, we'll tend to want to have that managed by the VigilAigent team. So I hope that answers your question. But there's a lot of detail we got to work out over the next couple of weeks as we do a deep dive on customers and other technology synergies and so on. But that's our general approach.

And second question for Bobby and Mark, since I was unfamiliar with the parent company, can you give us just some sense of the type of growth you've had historically? And if you're not making a forecast and not expecting a forecast, but some sense as to how you look at the opportunity because $3.5 million is still less than nothing in $1 trillion, maybe multi-trillion-dollar cybersecurity market. Now combining with Intrusion and having more access, do you have any sort of broad sense is this, eventually, hopefully going to be a $10 million, $20 million? I'm just trying to get a sense of how you look at your opportunity.

Very optimistically right now, actually, given where the market is at, and thank you for the question. So as you did indicate, we're not going to give any forward-looking guidance, but we do feel like we're extremely well positioned. One of the challenges that we've had is resource constraints. And as we look to not just capital resources, but personnel resources and we look across the combined organizations, we reap the benefit of a lot of really smart people and hope to bring some agility to that as well.

So leveraging a combination of some of the intellectual firepower, a lot of the relationships that are here and present and some of the ability to do some more aggressive marketing, we're expecting pretty significant organic growth, having the Nasdaq vehicle, as Tony alluded to, gives us the opportunity to be inorganic, which when you get deep into the weeds on why that makes sense, revenue growth without adding human beings or the ability when we talk about the fabric, the security fabric that we've developed gives us the ability to ingest not just tools and data, but other organizations very quickly without having to scale the human costs in the security operations center.

If we can continue -- and we've got pretty substantial data to back, both our ability to act quickly and to scale. So we know what it looks like in terms of adding revenue versus people. It is very nonlinear. So once we move through the back half of the year and validate more of this with growth, the margins start to lever up very quickly on that recurring revenue business. And in the licensing side, where we're fielding these inbound requests now, those are extremely margin rich because we're leveraging all of the technology resources and all the things we put into growing the managed detect and response business and now seeing demand from others.

There's actually a third stream in there, which is the data and the use of that data and the monetization of that data, which is, again, minus your cost of sales, is extremely lucrative. So we're very excited about what that looks like. And as we push forward, growth is going to be key. And I think as Tony alluded to, that's what this transaction is really all about is accelerating the growth and looking to go faster from here.

Yes. Walter, if I were to summarize, I would say the advantage the VigilAigent team brings is speed, which Mark alluded to, a very significant cost advantage and a very significant quality advantage. And those 3 elements, I think, are going to be very, very attractive in the market in terms of accelerating growth.

Your next question for today is from [Andrew Brandstetter] with ABL Investments.

I was just wondering if you could briefly discuss the growth strategy. And do you see any acquisitions on the horizon that could further enhance your product offerings?

Yes. I think we see both, as I mentioned, both organic and inorganic growth. What we see happening in the marketplace right now is there's tremendous consolidation going on in the MSSP, MSP space. PE firms are jumping in. I mean everybody is in there trying to consolidate and grow market share. And with these three elements that I've talked about, speed, cost and quality, I think we have a great opportunity to do some acquisitions to grow inorganically, but also just feet on the street, shoe-leather grow organically because of the attractiveness of this proposition. We don't have a specific target in mind right at the moment, but I think that's certainly within our framework in terms of going forward. So the answer is yes.

Tony, if I could just add on to that. When you look at one other -- there's one other factor in there that I think is really important when you look at the technology, which is maturity. When we present to very technical audiences and get deep in the weeds, what they talk about is how far ahead we are. We started on this journey to what it looks like today almost 18 months ago.

So it's seen massive amounts of data, which is really important to the training of the models and the training of the virtual agents. And so the maturity of it is really a huge enabler for us as we go forward, Andrew, in terms of being able to act quickly and move to scale.

That's great. As a follow-up question, when all the cost efficiencies are taken into account, how does the EBITDA margins look as a percentage of gross revenues?

I don't think we have an accurate answer to that at the moment, but some of the modeling we've done suggests that there's great opportunities in that space. But I'd be hesitant to give you a number at this particular point because there's a lot of variables in that at the moment. It has a lot to do with product mix, volume assumptions and so on. But traditionally, in the Intrusion space, we've been in the mid-70% margins, and I wouldn't expect significant deviation from that overall in the combined entities when all said and done.

Okay. Wonderful. Well, congratulations guys, and keep up the great work.

[Operator Instructions]

At this time, there are no other questions in the queue. I'll turn the call back over to our host, Mr. Tony Scott, for any closing remarks.

All right. Well, thank you, everyone, for jumping on the call today. And I appreciate everybody paying attention to this. We've obviously attracted some attention in the market today, which is welcome. And I just wanted to publicly thank Mark and Bobby and the VigilAigent team for their hard work.

Our team, working with Doug and Kim and our Investor Relations people and so on, has done a lot of hard work over the last couple of months to make this happen, and we really look forward to the next couple of months, our shareholder meeting. We'll seek approval of the 40% so that we can conclude the second half of this. And you'll hear from us again at our earnings call, if not before. So thanks very much, everybody, and we'll talk to you soon.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good day, ladies and gentlemen, and welcome to Intrusion, Inc.'s First Quarter 2026 Earnings Conference Call and webcast. [Operator Instructions] 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 Mr. Josh Carroll with Investor Relations. Josh, the floor is yours.

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 statements made during this conference call relating to the company's expected future performance, future business prospects, future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the 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, and we undertake no obligation to update these statements as a result of 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 to Tony for a few opening remarks.

Thank you, Josh, and good afternoon, and thank you all for joining us today. Our first quarter results reflect the negative impact of the previously disclosed delay in an anticipated contract extension with the Department of War, and I'll discuss that in more detail in a moment. But while these short-term headwinds to our financial results have been challenging, we remain optimistic that our financial results will see an improvement throughout the remainder of the fiscal year. This is supported by strengthening sales momentum that's already visible in the second quarter, including broader adoption of the P.O.S.S.E Program through our partnership with PortNexus and growth in our Shield installed base.

As I mentioned during our fourth quarter earnings call, we have been enhancing our federal, state and local sales efforts and broader go-to-market strategy, and we're beginning to see the early signs of these efforts paying off.

Last week, we signed a significant new customer contract, a $4 million annual contract to deliver our cyber threat intelligence and critical infrastructure protection to the state of Texas. The contract was awarded in recognition of Intrusion's unique capabilities and reflects the growing demand for our intelligence-driven approach to cybersecurity. The performance period for this contract is 12 months, during which we will work closely with the customer to deliver high standards of cybersecurity protection and operational responsiveness. Importantly, we believe that this engagement establishes a strong framework that can be replicated across other U.S. states and territories.

Now I'd like to address the delayed contract extension of our critical infrastructure technology with the Department of War. Our revenues during the first quarter were once again impacted by delays in finalizing an expected contract extension with the Department of War. And as noted on our fourth quarter earnings call, these delays were driven by operational and administrative constraints stemming from the U.S. government shutdown, which limited agencies' ability to initiate and process contract actions as well as ongoing geopolitical developments related to the conflict with Iran. Despite this delay in funding, we've continued to support the already deployed critical infrastructure technology, which is reflected in our operating expenses.

We expect to recognize revenue from this effort in a future quarter and remain confident in expanding our solution across additional regions with the Department of War throughout 2026. And while the Department of War is heavily focused on the war in Iran, the threats in the Asia-Pac region have not gone away, and we believe the situation will normalize in the next few months.

Now I'd like to address some of the other opportunities that will help support future financial growth for Intrusion. The expansion of our Shield cloud solution on both the AWS Marketplace and the Microsoft Azure platform have begun to show some promising signs in helping us expand our customer pipeline. While both expansion efforts are still in the early stages, we believe that we will see an uptick in revenue contribution from having our solution available on these 2 platforms over the next several quarters.

As you may recall, we also expanded our partnership with PortNexus in February with the launch of the P.O.S.S.E Program, which leverages our Shield on-premise technology to help protect law enforcement from cyber threats. The program continues to progress well with ongoing deployments and strong engagement across Texas, Missouri, Oklahoma and Iowa. And we expect to see further adoption as additional law enforcement agencies recognize the value of Intrusion's Shield technology in identifying and stopping active cyber threats. We're beginning to see the benefit of this partnership reflected in our second quarter results, and we anticipate that we'll see further financial growth from this program over the next few quarters.

As I've discussed on previous earnings calls and with many of you during our one-on-one meetings, AI is rapidly reshaping the cybersecurity landscape. Its growing adoption has significantly reduced the cost, the technical expertise and the time required to develop and execute highly sophisticated and scalable attacks. At the same time, customers are seeking cybersecurity solutions capable of keeping pace with these rapidly evolving threats. And that's where our AI-assisted platform comes in, which can help catch malicious actors before they can cause any harm.

As we enter the commercial space in a meaningful way, we believe this AI-assisted platform will help support our customer base, expansion efforts and further improve our top line growth.

Now briefly on to our financials for the quarter. Total revenues for the first quarter was $0.9 million, a decrease of 40% sequentially, which was directly the result of the delay in the incremental funding of the Department of War contract that I noted earlier on in our call. Our operating expenses also saw a slight increase during both the quarter and as compared to last quarter. This increase in our expense reflects deliberate strategic investments to strengthen our business and position us to achieve our goal of creating sustainable growth and long-term profitability as well as the costs associated with the critical infrastructure deployment and operation.

With that, I'd like to now turn the call over to Kim for a more detailed review of our first quarter 2026. Kim?

Thanks, Tony. First quarter 2026 revenue was $0.9 million, down 40% sequentially and 50% year-over-year. As Tony mentioned, results continue to be impacted by delays in the award of a key U.S. government contract, contributing to an unusually low reported revenue level. We remain optimistic that a meaningful portion of the associated revenue will be realized in future periods.

Consulting revenues totaled $0.8 million in the first quarter compared to $1.1 million in the prior quarter and $1.4 million in the prior year quarter. Shield revenues totaled $0.1 million in the first quarter compared to $0.4 million in the prior quarter and $0.4 million in the first quarter of 2025. We anticipate that these results will improve throughout the remainder of 2026, driven by the sales of our OT Defender solution to additional U.S. government departments and commercial customers, further growth of our partnership with PortNexus and the recognition of revenue from the new contract to deliver our cyber threat intelligence and critical infrastructure protection technology that Tony outlined earlier in the call.

First quarter gross profit margin was 74%, down slightly from the prior year period. Operating expenses in the first quarter of 2026 totaled $4.2 million, an increase of $0.3 million sequentially and $0.8 million year-over-year. The first quarter increase both sequentially and year-over-year reflects stepped-up investment in commercial activities, particularly through expanded trade show presence and enhanced brand and product marketing initiatives.

Net loss for the first quarter of 2026 was $3.6 million or $0.18 per share compared to a net loss of $2.1 million for the first quarter of 2025. The increased net loss in the first quarter was driven by a decline in revenues, primarily due to delays in incremental funding under a government contract. This was further impacted by higher operating expenses during the period.

Turning to the balance sheet. From a liquidity perspective, on March 31, 2026, we had cash and cash equivalents of $1.4 million. As we discussed during our fourth quarter call, we had begun the process of seeking a small debt financing. In early April, we entered into a $3 million secured financing agreement, strengthening our liquidity position and supporting our near-term operating priorities. The facility provides us with additional flexibility as we continue to execute on our strategic initiatives.

With that, I'd like to turn the call back over to Tony for a few closing comments. Tony?

Well, thank you, Kim. As I noted earlier in the call, as we move beyond the headwinds of the past 2 quarters, we're very optimistic that our financial performance will begin to improve through the remainder of fiscal year 2026. The teams worked diligently over the past several quarters to position the business for growth, and we're beginning to see evidence of those efforts taking hold, and it's evident by the continued growth of our critical infrastructure technology, our expanding partnership programs and sales pipeline and our ability to stay at the forefront of technology and cybersecurity, especially when it comes to AI that will help provide our customers with a more enhanced product offering. We still have a lot of hard work ahead of us, but we continue to remain on track to transition Intrusion to profitability by the end of the fiscal year and create value for our shareholders.

And with that, I'll now turn the call over to the operator for Q&A. Operator?

[Operator Instructions] Our first question today is coming from Ed Woo with Ascendiant Capital.

My question is on the Department of War contract that has been delayed. Are you still providing services on that? And when it does get approved, will all the revenues that you have, will it be recognized all at once? Or is it just kind of extend out the contract from when it's actually approved going forward?

Yes. Thanks for the question, Ed. We are still providing services. The government actually can't retroactively pay for things that weren't contracted for. So the revenue will come in or the contract will come in, and we'll bill forward from that particular point, but we wouldn't be able to reverse recognize revenue, I don't think, in that particular case. So -- but I think this is an important capability. The customer there is very happy with the solution, and we look forward to getting this resolved.

That sounds good. And then going back to the pipeline, have you noticed any change in terms of -- I know there's some geopolitical issues, but it seems like at least on the AI front, a lot of Chief Technology Officers are still putting the gas on the pedal to spend. Have you seen any change in the last couple of months in terms of people -- enterprises or government spending on IT, specifically on cybersecurity?

Yes, it looks to us like the spend is still going up slightly. I think one of the things that we've talked about before is AI is sort of creating a little bit of concern in terms of how easy it is to conceive of an attack and actually launch it. And I think that's put a little extra oomph into people's desire to have more advanced solutions. And so I don't expect that to change much in the rest of 2026. So we're -- we think we should get our fair share of that.

Our next question is coming from Howard Brous with Wellington Shields.

So let me focus on PortNexus and see if I can get a better understanding of how big an opportunity this is. So where are you deploying it? And what size as this gets deployed? And what's the opportunity near term and longer term?

Yes. So I'll give you a couple of examples. We did a demonstration of the MyFlare Alert with the majority of the counties in Iowa. This is probably 2 months or so ago. And we now have 4 active deployments in Iowa with several more scheduled over the next few months. And we're replicating that sales motion in some of the other states that I mentioned on the call earlier. So the enthusiasm level is high. One of the things that this is subject to is the budget cycle for -- this is primarily counties and school districts. So -- we've heard lots of comments from both schools and counties that they love the solution, but -- and would put in requests in their budget packages. And then it's a question of whether those budget packages get approved at the local level. And that's going to vary across the country and across various states. But I'm optimistic because of the reception that we get whenever we show this to either school or the sheriffs or law enforcement officials.

I hope at the end of the day, we're in every county in this country because it's such a grand and cost-effective solution to that problem of situational awareness when there's an incident in a place like a school where some of our most precious assets are every day.

How is it possible that a school board can say no when you're talking about a methodology of protecting your children or your grandchildren? That I don't understand.

Yes. I think that goes to the level of enthusiasm that we've seen. I think the problem is not there. It's not with the school administrators or with the police force and so on. It's squeezing it into a budget that I do know is very tight in most cases. The schools are not flush with cash in a lot of situations. But we're also working at the state level and federal level to hopefully make sure that there's some grant money and other kinds of things available so that schools, even if they can't afford it in their own fiscal budget could take advantage of this solution. So a lot of different ways to skin that cat. But I agree with you. I don't know why anybody would ever say no.

How difficult is it to deploy in each facility? Does it take a month, a week, 6 months?

It's 1 day or 2 max in the vast majority of cases. It's a very quick lightweight install.

So from your perspective, what kind of margins, if you can comment on it, what kind of margins could you look at?

Well, for Intrusion, we license our network protection technology to PortNexus. And so it's nearly 100% margin for us because PortNexus does the install. Our only direct costs are marketing assistance, and we do go to trade shows and other events and explain the network protection part of this. In the case of sheriffs, we also put in an appliance, one of our Shield boxes, and that has the same margin as our other Shield business. So it's in the mid-70% range when we put in hardware at the sheriff's office. So a very good business for us.

So is it fair to say that on a sequential basis, each quarter potentially could be better than the prior quarter for the next period of time?

I would certainly think so. And also word of mouth is starting to get around on this. So when we do events and so on, more and more people are saying, "Oh, I heard about this. I want to learn more or those kinds of things." So I expect that, that will help us as well.

How many schools are there, 150,000, give or take, in the United States?

Well, I don't know, Howard, it's got to be at least that, I would think. It's -- we're not talking about just public schools. There's private schools, there's grade schools and high schools and preschools and trade schools and all kinds of opportunities. This is a great solution for courtrooms or any place, sports facilities, any place we're -- there's a potential for an incident where you need situational awareness right away. And right now, we're focusing on schools and sheriff's departments, but there's nothing that would preclude any of these other kinds of venues from adopting the solution.

So let me come back to my -- basically the first question. Sequentially then you can foresee over the next several quarters, business getting better each quarter. And then does that lead to profitability?

Well, overall, we think the business will be cash flow positive at the end of 2026. And so it will be a contributor to that, but not the whole answer.

At this time, there are no other questions in the queue. So I'll turn the call back over to Mr. Tony Scott for any closing remarks.

Yes. Thanks, everyone, for being on the call today. I apologize, I'm a little hoarse. I don't know if it's allergies or what. But I do want to reiterate that I'm very enthusiastic about the remainder of the year. This win that we announced today is the first of what I expect are going to be several big wins for us over the coming months. And the team that we put together to go after these is highly skilled, highly experienced and can help us in areas where we have not had that much success in the past. As some of you long-term followers know, we were deep in the places we were in, but almost nonexistent in other places in the federal government and even in DoD, in particular. And our team now has the skills and the ability and the history of doing good things and big things in places where we're not currently present. So I'm very excited about those.

When they get done like the one we announced, they come in big chunks. And we've got a whole bunch of other tricks up our sleeves for the remainder of the year. So stay tuned. We're pretty excited and everybody here is working really, really hard to make sure that '26 takes us in a new direction from where we've been. So I appreciate the support, and we'll talk to you by next quarter, but probably a few times in between. And thank you.

Thank you. Ladies and gentlemen, this concludes today's call, and you may disconnect your lines at this time, and we thank you for your participation.

Welcome to Intrusion Inc.'s Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. [Operator Instructions] 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 related to the company's expected future performance, future business prospects, future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the specific risk factors that could cause or 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, and we undertake no obligation to update these statements as a result of 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.

Well, thank you, Josh, and good afternoon, and thank you all for joining us today. Fiscal year 2025 was a year that had an unexpected beginning and an unexpected ending along with a number of significant product milestones along the way. At the beginning of the year, we improved our balance sheet by fully eliminating our then outstanding debt and Series A preferred stock. At midyear, we rolled out production of our critical infrastructure solution to help safeguard essential assets like water, power and telecom facilities. In the third and fourth quarter, we expanded our access to our Shield Cloud solution by making 2 variations of the product available on the AWS marketplace. And towards the end of the year, we announced our partnership with PortNexus to provide secure network protection for their MyFlare safety technology, which is being deployed at schools in several states.

In conjunction with PortNexus, we also launched the [indiscernible] program, which will give tariffs and other law enforcement agencies critical network protection for their public safety networks. And our pilot experience with the [indiscernible] program is encouraging with a high adoption rate so far. And finally, we ended the year with an unexpected delay in the extension of the earlier mentioned critical infrastructure contract with the Department of War. And I'll start my detailed remarks with some more insight about this unexpected end-of-year development.

Kim will provide more details on the overall number shortly, but our fourth quarter revenues decreased by 12% compared to the prior year period as a result of the delayed timing of an expected contract extension for our critical infrastructure technology. But for this delay, we had expected to show quarter-on-quarter increases in revenue, and greater year-over-year increase in revenue overall.

Now to be clear, the cost of providing the services for this critical infrastructure solution are included in our operating expenses, but the expected revenue is not and will show up in later periods when the contract is extended. The timing of this contract extension was and remains affected by the operational and administrative constraints associated with the U.S. government shutdown, which limited agency's ability to initiate and process contract actions during that period. And the situation is further impacted by the events related to the war in Iron unfolding currently. This delay in funding reflects a broader trend affecting companies with U.S. government contracts, particularly those operating within the defense sector. And while we're disappointed by this delay, we do believe that we will be able to recognize this revenue during the first half of 2026 once procurement activity normalizes, and we are continuing to support and enhance the solution that we have provided, and we look for further expansion of this solution in other regions in 2026.

We're proud of our partnership with the U.S. Department of War and the critical role we play in protecting national security through our advanced cyber capabilities. We continue to view the critical infrastructure solution that we have rolled out with the Department of War as one of the key drivers of future growth, especially as cyber threats become more frequent and more sophisticated. To convert this opportunity into future growth, we've recently taken targeted steps to enhance our sales efforts and go-to-market strategy, and I'll discuss these initiatives in more detail shortly, but they are specifically designed to expand our customer base across the private sector as well as federal state and local government markets.

Turning now to some fourth quarter developments. During the quarter, we announced the launch of our Shield Cloud offering on the AWS marketplace, expanding the opportunity for customers to access our Shield technology. Additionally, we've launched our Shield Cloud offering on Microsoft's Azure platform and it's now live. With availability across both leading cloud marketplaces, we've meaningfully expanded our sales reach, which will help enhance our customer pipeline and drive future revenue growth.

On top of this customer access expansion effort, we've also continued to strategically invest in R&D to help provide enhanced offerings to our customers. This is evident by the recent launch of Shield Stratus, a cloud-native packet filtering solution that inspects every connection and blocks known threats immediately without the complexity or rearchitecture required by traditional firewalls. Shield Stratus integrates seamlessly with AWS gateway load balancer and is a great addition to our Shield ecosystem.

Now on to some of the more recent developments during the first few months of 2026. As you may recall, we began a partnership with PortNexus in 2025, and who chose to embed our Shield endpoint solution into their MyFlare solution that helps provide enhanced security for education and law enforcement customer end points. In February, we expanded our partnership with PortNexus by launching the [indiscernible] program that utilizes our Shield on-premise technology to help protect law enforcement from cyber threats. The program achieved high levels of adoption during the initial pilot. And in the pilot program, Intrusion Shield technology identified and stopped dozens of active threats. The program is now scaling across Texas, Missouri, Oklahoma and Iowa through our partnership with PortNexus. And this partnership provides distribution access to hundreds of sheriffs' departments, schools and government facilities. So an exciting development, and we look forward to working closely with PortNexus to help expand this program and increase the adoption of our technology.

We also recently took steps to expand our business development efforts with the hiring of Valencia Reeves as our Public Sector Vice President of Sales; and Patrick Dugan Anthony Scott our Director of Channel sales and partnerships. These 2 additions to our team will help strengthen our U.S. business development efforts across the government sector and our channel partners.

Now briefly on to our financials for the quarter and the year. Total revenues for 2025 were $7.1 million, up 23% year-over-year. This top line growth was largely driven by the contract expansion with the U.S. Department of War that I touched on earlier.

Fourth quarter revenue was $1.5 million, a decrease of 25% sequentially, which was the result of the delay in the incremental funding of the Department of War contract that I previously referred to.

Our operating expenses also saw a slight increase during both the quarter and the year. This increase in our expense reflects deliberate strategic investments to strengthen our business and position us to achieve our goal of creating sustainable growth and long-term profitability as well as the costs associated with the critical infrastructure deployment and operation I mentioned before. We've made meaningful progress against our goals, and we believe we're on track to breakeven operations.

And finally, before I turn the call over to Kim, I'd like to wrap up by addressing some of the recent AI trends that we're seeing in the cybersecurity space. As I'm sure many of you are aware, the recent emergence of cloud code security has caused a bit of a shakeup in the cybersecurity space as some fear of this tool will change the industry by eliminating defects in software. However, I do not view this development as a threat to cybersecurity companies such as Intrusion, but more as a promising tailwind for the industry. While improved code quality is more than welcome, it's only one aspect of the landscape of cybersecurity vulnerabilities. And in fact, the rapid adoption of AI has materially increased cybersecurity risk as it has significantly reduced the cost, the technical expertise and the time required to develop and execute highly sophisticated and scalable attacks. As a result, this is only going to increase the need for cybersecurity solutions, such as the ones that we provide to our customers that help catch these malicious actors before they can cause harm.

With that, I'd like to turn the call over to Kim for a more detailed review of our fourth quarter and full year financial results. Kim?

Thanks, Tony, and good afternoon, everyone. Fourth quarter results totaled $1.5 million in revenue, a decrease of 25% compared to the prior quarter, and 12% when compared to the prior year period, as noted earlier on the call. This was due to the delayed incremental funding of a major U.S. government contract. The timing of this award was affected by funding and procurement constraints associated with the U.S. government shutdown and continuing resolution, which affected agency's ability to approve and initiate new contract actions during the period. We believe the delay in this contract award is primarily timing related and anticipate that a substantial portion of the delayed revenue associated with this contract will be recognized in future periods.

Consulting revenues totaled $1.1 million in the fourth quarter compared to $1.5 million in the prior quarter and $1.3 million in the prior year quarter. Shield revenues totaled $0.4 million in the fourth quarter compared to $0.5 million in the prior quarter and $0.3 million in the fourth quarter of 2024.

We anticipate that the sale of our OT Defender solution and other departments of the U.S. government as well as commercially will contribute to future growth. Additionally, during 2025, we partnered with PortNexus to integrate our Shield technology into its MyFlare Alert School Safety solution. Although sales to PortNexus did not materially impact 2025 revenues, the expanded pipeline for this offering is expected to support future Shield revenue growth.

Fourth quarter gross profit margin was 74%, which was slightly down from the prior year period. For the full year, gross profit margin was 76%, down approximately 93 basis points versus 2024.

Operating expenses in the fourth quarter of 2025 totaled $4 million, an increase of $0.3 million sequentially, and $0.8 million year-over-year. The fourth quarter increase both sequentially and compared to prior year was primarily driven by higher sales and marketing expenses reflecting increased participation in trade shows and expanded brand awareness and product marketing programs.

For the full year, operating expenses totaled $14.5 million, an increase of $1.7 million compared to 2024.

In addition to the increased sales and marketing expense, the full year increase primarily related to onetime savings realized in 2024 from the negotiation or cancellation of existing contracts, which contributed $0.5 million in savings in 2024, increased share-based compensation of $0.8 million from equity grants made in the first quarter of 2025 and cost of living and merit increases of $0.3 million.

Net loss for the fourth quarter of 2025 was $2.8 million or $0.14 per share compared to a net loss of $2 million for the fourth quarter of 2024. The increased fourth quarter net loss is the result of the reduction in revenues resulting from the delay in the incremental funding of government contract and increased operating expense.

Net loss for the full year was $9.1 million or $0.46 per share, a $1.3 million increase from the prior year.

Turning to the balance sheet. From a liquidity perspective, on December 31, 2025, we had cash and cash equivalents of $3.6 million. Looking ahead, we plan to seek a small debt financing in the near term to help further support our growth initiatives. We have already begun to have some initial discussions, and we'll provide an additional update on the debt financing during our first quarter earnings call.

With that, I'd like to turn the call back over to Tony for a few closing comments. Tony?

Thank you, Kim. 2025 was a year of meaningful progress for Intrusion from a product development standpoint and was marked by several key improvements, including new products. And while this progress was encouraging, we're not satisfied, and we realize that we have some significant work ahead of us. As we look to the remainder of '26, we will be doubling down on our sales efforts to expand our customer base and to further improve our top line growth.

We're confident that we have both the right people and the products in place that will help us achieve our goal of creating sustainable growth and long-term profitability. And before I wrap up, I want to extend my gratitude to our employees. The progress we've made this past year is a direct reflection of their dedication and hard work. And to our shareholders, we deeply appreciate your patience and steadfast support throughout this journey.

And with that, I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Your first question is coming from Scott Buck from H.C. Wainright.

Tony, I'm curious, can you provide a little more granularity on the unit economics of the [indiscernible] program? Like what is the average contract value for a typical sheriff's department deployment? And what do the sales cycles look like with your partnership with PortNexus?

Sure. Well, the device that they select will depend a lot on the network bandwidth that they need at the sheriff's department. So those could range from a few thousand dollars up to tens of thousands of dollars depending on the size and bandwidth requirements of the particular sheriff.

In the case of the pilots, we used some of our lower-end appliances. So it's a few thousand dollars in terms of unit pricing on those. But what I'm encouraged by is when we -- as we've experienced everywhere else, once we show the network traffic that's getting through the traditional firewalls and other technologies they have in place and also show the outbound traffic that should be blocked that's not currently being blocked, it makes the sale pretty quickly. So we're seeing a high adoption rate and we're going to expand into these other states, as I mentioned on the call. And the way it works is we loan them a unit, it goes in for a week to 10 days. We do a report and show them the traffic that we see and would have blocked if we've been in place, and they love it. So we're doubling down on that. We're increasing the number of POC units, and we'll see where it takes us. So that's kind of the way it works.

That's very helpful. And then I wanted to clarify something in your prepared remarks. Did you say that had you not had the delay from the government contract during the quarter that we would have seen sequential revenue growth from the third quarter?

Yes. Yes. That is correct.

Okay. Perfect.

That is correct. Yes, we were expecting to report growth, both for the quarter-on-quarter and year-on-year above and beyond what we reported on the year-on-year.

Okay. So it's safe to assume that contract delay cost you at least $0.5 million in the quarter?

Yes.

Yes. Perfect. And then, Kim, I wanted to ask about sales and marketing expense. I think it's the highest quarterly level of spend maybe ever. Is this the new run rate? Or given some of the comments during the call, can we expect further investment in sales in 2026?

We will continue to invest in sales and marketing. What we saw in the first quarter approximates the run rate, but we will see some increases from here.

Scott, I'd also add, we're looking for cost efficiencies elsewhere. So it's important for us now to improve that sales and marketing muscle, and we'll look for other efficiencies elsewhere as we buttress up that capability.

Okay. So we may not see as material an increase in total operating expense because some of those dollars will.

Could be offset...

could come from other buckets?

Yes. exactly.

Your next question is coming from Ted Woo from Ascendiant Capital.

Did I hear you right that you said for the delayed contract that some of your expenses has already flown through the P&L already...

That's correct. We've taken all the expense associated with that. We just are not able to recognize the revenue at this point.

Okay. And then...

I'm sorry? What that means is when the revenue does come, it will show up in a subsequent quarter, but the expense will already have been recognized.

Okay. So that would be a 100% margin when it comes through?

Pretty nearly, yes.

Okay. And then are you seeing any -- what about the sales cycle pipeline for commercial customers? Have you seen any delays, any lengthening of sales cycle? Any concerns that you're hearing from Chief Information Officers out there?

Beyond the government sector, no real change. I think the one concern that we hear all the time is that the dwell time for threats is getting shorter and shorter and shorter, which means you have to react faster than ever, once some suspicious activity is noted. And I think that bodes well for Intrusion's technology because we don't rely on the presence of malware or other known signatures, we're heavily focused on repetition, which means that we can stop things in real time versus waiting for something bad to happen and then have to react to it and then remediate and so on. So we're currently having some discussions with MSPs and so on who are attracted to that kind of capability because it helps get out in front of these attacks versus waiting for an attack to actually happen.

Your next question is coming from Howard Brous from Wellington Shield.

A couple of questions. Tony, critical infrastructure customers that you have, can you give us a general sense of what kind of customer it is? And is he happy with the work? Is this basically expandable for that particular customer?

Yes. So this solution is protecting critical water infrastructure in the Asia-Pac region, and the customer is very happy with the solution. It's working as designed, and we continue to support it. And I think there's tremendous opportunities for this to expand beyond the region where it is now. We're doing one island right now in Asia-Pac. But as you know, there's a lot of islands that the Department of War has interest in, in that particular region. And so I think the revenue opportunity that comes from this is multiplied by the number of islands that still need this kind of protection.

And that's not to mention the domestic facilities as well, which fall under Homeland Security jurisdiction generally. And with our new sales capability that I mentioned on the call, we're targeting those places as well. And we've got great customer reference from this initial deployment. So we're pretty excited about the revenue opportunity in '26 and going forward. There's a lot of this critical infrastructure around, whether it's water or telecom or electrical grid kinds of things, and our solution is tailorable to each of those environments.

So let me take [indiscernible] for a moment and talk about school and children. You install this in a school, and my understanding it's in every school room, every class move and can be activated by a teacher. This is a potential event happening where somebody is coming into the school with a weapon. Is that fair comment?

Correct. Yes, that's the PortNexus solution that we're partners with. Yes.

Right. So you've got thousands of school districts throughout the country, why isn't everyone adopting this? It protects our children. There's nothing more important than that.

How are you going about marketing this?

Well, with PortNexus, we're attending events where school administrators look for technology. We're also marketing, as we mentioned, to the sheriff's department because -- or whoever the local law enforcement agency is that's associated with a particular school district because it takes the combination of them to really adopt the solution. The good news is it's very inexpensive. I've mentioned a couple of people. It's the kind of thing that, in many cases, the local PTA could find even if the school couldn't afford to do it. But you're right. I think once you see the demo of this capability and the situational awareness that it brings to the law enforcement of people within seconds of an event occurring, it's a why wouldn't we want to have this kind of thing. And so we're really looking forward to 2026 to expand this greatly across lots of markets in the U.

S.

And how your reception so far has been?

It's been outstanding, yes. Again, once you see it, you go, dah, why would I ever want to be without this kind of thing. And parenthetically, I'll say it could apply to other public venues as well. It doesn't necessarily only get marketed to schools. But any place where people gather and there's a potential for disruptions, whether it's active shooters or fire or any other kind of an event that might be disruptive, it's really important for law enforcement to get situational awareness as quickly as possible. And this PortNexus solution allows for multiple perspectives to get that situational awareness as well as alerting the authorities very quickly when an event happens. It shaves minutes off of that critical first few minutes when you have a potential to avert disaster. And I don't know anybody who's ever seen it that doesn't think that's a good idea so...

Anything to protect our children is a very good idea. Can you talk about...

You got it.

No doubt about that. Talk about the kind of cost? Is it per student, per class, per school?

It's per classroom. The PortNexus solution would go in to the classroom in the case of a school and attached to or become part of the smart whiteboard that's in the classroom and then school resource officers and teachers and anybody else that should be registered gets registered to that location. And then in the event of an incident, the panic button gets pushed, a text goes to all the preregistered cell phones. It turns the cell phone into lights up the camera and the microphone and the GPS signal and all of that gets fed to the law enforcement authorities along with video from the fixed cameras that usually are already installed in the school. So when an event happens, the law enforcement authorities have great situational awareness and location information from multiple perspectives, it's invaluable.

And we license to PortNexus the network protection aspect of it. So the revenue we get comes from the number of classrooms and then the number of schools within the school district.

And the margins on this are high margin...

so for us, it's very high, yes, because we don't actually have to go do any install or anything. We just license our software, PortNexus team is responsible for the installs and first-level support and so on. So it's almost pure profit for us.

This is a big deal. Anything to protect our children, That's a good thing.

You got it.

Your next question comes from James Green.

My question concerns the potential emerging technologies and the ability for your technology to interface with those things. And I'm specifically thinking about as we move forward into a day in an era where we have humanoid robots and we have autonomous cars, we have an imminent threat where if they're compromised they can be an immediate danger if someone compromises it.

Hello. I think we may have lost you, or I couldn't hear the rest of your question. Hello, can anyone hear me?

Apologies. James Greens line has disconnected.

Okay. Well, I think the question was -- I'll try to answer as best I can. Yes, there's more and more software, more and more autonomous things, whether it's robots or everything in your house, the emergence of AI and everything, I think widens the aperture for cybersecurity risk significantly. And our fundamental belief is that if you're not monitoring the network that all of these things need to operate on, if you're not monitoring it in real time packet-by-packet in multiple places in your network, you're likely to miss important things that would allow you to avert a disaster. And that's what Intrusion Shield does. We look at every packet in near real time and we make a decision about whether that packet is likely good or likely bad or unknown in some cases, and we make a decision. And I have used the analogy, it's like having continuous blood monitoring in your body. Most people get their blood drawn once a year when they go to physical exam, but some bad condition might have existed for almost a year, and you wouldn't know it until you get your blood drawn and get it tested.

In our case, we're doing the equivalent of looking at every single drop of blood in the body all the time, every time it moves through the body, and that allows us to very quickly detect when there's something untoward going on. And so I think that type of protection is what's going to be more and more and more important as things move forward, specifically with AI and more and more software in our lives. The threat landscape just got a whole lot bigger and needs to be monitored and managed.

And James Green, your line is connected and live.

Sorry, I accidentally got the line disconnected, so I missed the beginning of what you said. But since I missed the beginning, my question was, based off those emerging technologies, et cetera, is the current form factor or technology that you all utilize? Is it easily interfaced with those potential technologies? Or is there some minor alteration necessary to be able to utilize them in that?

Yes. We -- yes, so the answer to that is we can attach to the network in any form that it occurs, whether it's wired or wireless or in the cloud or in a data center or in a home for that matter. And the important thing, as I was saying in my earlier answer is to be really safe, you need to be monitoring the network each and every packet all the time and monitoring from multiple places in your network to be assured that everything that is going on in the network is desirable and necessary even in some cases. So yes, we're very flexible in that regard. And we have put the R&D effort into making sure we can handle increasingly large bandwidth as that becomes a necessity. So I think we're well prepared for the future in that regard.

Okay. And 1 other question, which is since we have all these scenarios where people are going to have local agentic things running on their own potentially private networks walking back off a cloud, the speculation that companies might be trying to have all the things working within their own system, is there a way in which the technology deals with the agentic element even internally?

Yes. I think to the degree that all of these agentic tools will use the network that allows us to monitor what that activity is. And I think you're going to see in 2026, I've made this prediction a number of times, you're going to see some pretty big accidents caused by unrestrained AI, where people loose something that got out of control somehow, whether it's privacy violation or whether it's a violation of releasing intellectual property in an unwarranted way. Who knows what it could be. But I think it's easily predictable that that's going to happen in '26. And for us, the only safeguard against that kind of thing is continuous real-time network monitoring so that the nanosecond something bad happens that you can stop it and shut off its activities. So we think we're in a good spot as all of these things come to fruition.

So like within a local network, if there's a agentic misbehavior, it can be controlled from being able to, in fact, ones outside connected potentially?

Yes. Yes. One of the characteristics of malware already today, even without AI is what's known as a call home, an infected device inside the network makes a call home to a command-and-control server externally and looks for instructions in some cases or just reports its presence in the network where it finds itself resident and then often waits for instruction and what to do next, launch a fishing campaign or launch some sort of other kind of attack. And intrusion technology is particularly good at stopping those call homes that would otherwise be very dangerous.

Now I'll say what we don't do is we don't go fix the device that had the problem. We just point you to it and say, this device over here has apparently got a problem. It's generating call homes to undesirable place. But most managed service providers and managed service security providers and institutions already have the tools to do remediation. What they lack is the early detection of that activity, and that's where Intrusion comes in.

[Operator Instructions] Your next question is coming from Jerry Wanwitz from Yanco Limited.

Tony, last quarter, you opened your comments by saying you're pleased to report that during the third quarter, we continue our path towards achieving our goal of creating sustainable growth and long-term profitability. Today, you opened by saying you're on the path to breakeven operations. My question is, in what quarter do you expect to have those breakeven operations?

Well, can you tell me when we're going to have another government shutdown or CR...

Assuming no government shutdown and no CR, what quarter would you expect that breakeven operations?

I -- well, it depends on new contracts that we signed. As I mentioned, we think this critical infrastructure solutions got pretty big legs. Our first contract for that was a $3 million roughly annual contract, and it wouldn't take too many more of those to get us to that goal. So it's all dependent on timing in '26 of when we would get those. But we think we're in a good position to land more of those in '26 than we did in '25 and whether it's 2 or 3 or whatever.

Would you be extremely disappointed if you weren't breakeven in the third quarter of this year?

Yes is the answer. I was disappointed that we weren't at breakeven right now, to be honest with you. We thought we were on a path to get there more quickly than we have been, and that's life. And there's probably some mistakes that we made that we, in retrospect, would do differently. But I think -- I still think we're on the right path, and I'm pretty optimistic that 26 is our year.

All right. So by the third quarter, we should expect to see that as shareholders?

I would hope so, yes. And I'm a shareholder so...

You have to get in the game, so I appreciate it.

Yes.

Thank you. At this time, there are no other questions in the queue. I'll turn the call back over to our host, Mr. Tony Scott for any closing remarks.

Well, as I said before, I just want to thank everybody for your interest in Intrusion. As I said at the beginning, it was a year that was unexpected in many respects. And I look forward to the progress that we can make in '26 with a little more stability and a little more predictability coming our way. We've made, I think, all the right investments in our tech. We've begun the strategic investments in our sales and marketing capability that, frankly, we've lacked over the last couple of years. If I had to look back, I probably was a little too slow in building up that muscle. But I'm very pleased with the team that we have now, and they're showing remarkable ability to get us into places that -- and talk to people that we hadn't been talking to over the last couple of years. So that gives me hope. These are experienced sales and marketing people, and it's just a pleasure to work with them and see the progress every single day.

So I'm appreciative of everyone's patience. I know it's been a along grueling road. But I remain optimistic and excited about what we can do together in. So appreciate everybody's time today, and I look forward to speaking with you at the next earnings call or maybe some announcements even before then. Thanks.

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

Welcome to Intrusion Inc.'s Third Quarter 2025 Earnings Conference Call and Webcast. [Operator Instructions] Please note, this conference call is being recorded. An audio replay of the conference call will be available on the one'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 would like to remind everyone that statements made during this conference call relate to the company's expected future performance, future business prospects, future events or may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking 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 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 lessors 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, and good afternoon, and thank you all for joining us today. I'm pleased to report that during the third quarter of 2025 we continue our path towards achieving our goal of creating sustainable growth and long-term profitability. And a few of our highlights of our progress in Q3 include our sixth consecutive quarter of sequential upline growth, demonstrating consistent execution and increasing demand for our products. Continued near 0 customer churn, which we view as a testament to the value of our offerings.

And the expansion of our Shield technology offering through the launch of Shield Cloud on the AWS marketplace. I'd also highlight the ongoing rollout of our critical infrastructure solutions, reinforcing the demand that we see to help protect these [indiscernible] assets from cyber threats. And finally, the strong momentum we are seeing from our solution partner, PortNexus, as they continue to deploy the MyFlare platform.

Now none of what we achieved this quarter would be possible without our incredible team, and I'm deeply grateful for the passion and the commitment our employees show every day in serving our customers and advancing our mission. I'd like to provide some additional context on a few of these highlights, all of which are aimed at positioning intrusion for sustained growth.

First, we're really excited about the launch of our Shield Cloud offering on the AWS marketplace, which we believe will help drive long-term growth for our business. By making Shield Cloud available on the AWS marketplace, we're not only expanding the opportunity for customers to access our Shield technology, but we're also positioning our cybersecurity engine directly where innovation is taking place.

Although still in the early stages, we're already seeing encouraging traction with new potential customers, which we believe will begin contributing positively to our financial results in the fourth quarter and throughout fiscal year 2026. In addition to AWS, we're also preparing for the launch of our Shield Cloud offering on Microsoft's Azure call platform later this quarter or early in the first quarter of 2026. This launch will further expand our ability to reach new potential customers.

Next, I wanted to mention that we're continuing to make progress with the rollout and adoption of our Shield critical infrastructure offering. And at the end of the third quarter, we shipped over 230 units of this critical infrastructure device as a part of our previously announced contract with the Department of Defense. And as we've previously noted, this represents a promising opportunity for intrusion, driven by the growing need to protect critical infrastructure from evolving cyber threats. We're actively pursuing additional contracts in the private sector as well at both the federal, state and local government levels, and we remain optimistic about posing new agreements in the near future.

As for our partnership with PortNexus, we're continuing to see strong demand for Shield endpoint that's embedded within their MyFlare solution. And that solution provides enhanced security for education and law enforcement customer end points. As some of you may have heard me say during recent discussions, the sales cycle for this solution has been one of the shortest I've ever seen. The demand for this solution, especially among school districts, is strong, and we anticipate that we will see further adoption of this offering in coming quarters.

Now briefly on to our financials for the quarter. Total revenues for the third quarter were $2.0 million, representing a 5% increase compared to the previous quarter and a 31% increase on a year-over-year basis. This was largely driven by the contract expansion with the Department of Defense that we previously discussed. And our operating expenses increased modestly this quarter, primarily reflecting the continued strategic investments that we're making in the business to drive growth.

As we've noted in the past, we remain committed to disciplined spending, as we invest to support our growth over the coming quarters. Now before I turn the call over to Kim, I'd like to address the current government shutdown. As you all know, the current government shutdown has impacted businesses across the board. For Intrusion, we've not yet seen any meaningful effect on our business. And it looks like the situation is on a path to resolution, thankfully. But most of the government contract conversations are still occurring. And we expect that we will be able to see additional government contracts once this situation has been resolved in Washington.

In the meantime, we're continuing to see our pipeline of nongovernment opportunities expand, and we remain excited about the future here at Intrusion, as 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 third quarter financials. Kim?

Thanks, Tony, and good afternoon, everyone. Third quarter 2025 revenue was $2 million, up 5% sequentially and 31% year-over-year. Growth was driven by expansion of work performed under the contract with the U.S. Department of Defense, which utilizes both Shield technology and consulting services. Consulting revenue of $1.5 million is up $0.1 million sequentially and $0.4 million year-over-year.

Shield revenues in the third quarter totaled $0.5 million, which was relatively flat sequentially but up approximately $0.1 million year-over-year. The increase in shield revenue primarily reflects the work performed under the previously noted DoD contracting work. As Tony mentioned, we are continuing to see strong demand for our services with both governmental and commercial customers and anticipated deeper penetration in both sectors, which will result in further changes to our customer mix.

Third quarter gross profit margin was 77%, down 58 basis points year-over-year, which is consistent with expected variability based on product and service mix. Operating expenses in the third quarter of 2025 totaled $3.6 million, an increase of $0.1 million sequentially and $0.4 million year-over-year. The increase sequentially was largely driven by an increase in sales and marketing expense related to increased participation in trade shows and programs to generate brand awareness and concise product marketing messaging.

We may continue to further increase our investment in both product development and sales and marketing to accelerate the growth of our customer base, which will result in higher operating expenses. The increase over the prior year period of $0.4 million is primarily due to higher share-based compensation from equity grants made in the first quarter, timing of merit increases and minor changes to staffing. Net loss for the third quarter of 2025 was $2.1 million or $0.10 per share compared to a net loss of $2.1 million for the third quarter of 2024.

Turning to the balance sheet. From a liquidity perspective, on September 30, 2025, we had cash and cash equivalents of $2.5 million and short-term investments in U.S. treasuries of $2 million. Subsequent to quarter end, we received $3 million in cash related to the DoD contract extension, which increased our cash position, inclusive of short-term investments to $7.5 million, which we believe is sufficient to fund operations through the remainder of 2025 and into early 2026.

With that, I'd now like to turn the call back over to Tony for peak closing comments. Tony?

Thank you, Kim. And I think the third quarter was another step in the right direction for Intrusion as we are continuing to make great progress towards achieving our goal of generating sustainable growth and long-term profitability. And while we're proud of the progress we've made, we're not satisfied with our overall financial results. We know there's still more work to do, and we're confident that we can and will deliver stronger performance over time.

Achieving this will require continued discipline and time, but we believe our ongoing investments in the business, the strength of our expanding pipeline and the improved engagement we're seeing with both customers and partners, has positioned us well to drive enhanced financial results. Now this concludes our prepared remarks. And I'll now turn the call over to the operator for Q&A.

[Operator Instructions]The first question comes from Scott Buck with H.C. Wainright.

Tony, I think you touched on it a little bit in the prepared remarks, but I wanted to kind of dig in a little bit deeper on the infrastructure work with the DoD. When do you get far enough along the process or prove yourself enough that maybe you open the door to some additional work of a similar nature with them?

Already in progress. So with this first project, it's opened the doors for us to have conversations about deployment in other locations. Right now, we're in a [ One Island ] location in the [pack ] room, but there's lots of islands there. There's also domestic opportunities for this. From a government perspective -- and then there's, we think, even more opportunities from a private sector or a commercial perspective. So I'm particularly excited about this product.

These are -- like we've seen in this particular case, it's a big dollar sale when it happens. PAUSE And we think we have an opportunity for many more of these during not only the next quarter, but next year. So it's a big area, a big opportunity for us. Now we've got to close them. We got to get government funding squared away, which as we've all experienced, is a daily up and down sort of situation. But I think the potential is big for this product.

It is our most successful product at this particular point. So we're going to bet on it and all we can.

No, that's great to hear. Now Kim, do you need to add heads or any kind of other supports to kind of press on those opportunities?

No. There's a fairly small capital investment because there is a device that goes with this infrastructure monitoring. But otherwise, we don't expect or anticipate having to add heads or increase our operating expenses to any large degree.

All right. Perfect. And then, Tony, I want to ask -- I know it hasn't been very long, right? But I'm curious what the experience has been like so far on AWS where you may be seeing some interest and any kind of initial feedback you guys are getting, I think, would be helpful.

Yes. It's -- we've gone through -- we've actually been in AWS for the bulk of the third quarter and now into the fourth quarter. And we've already done a couple of updates to make it easier to configure and install. And we have one more big update coming shortly that I think will make it even easier. And this is all based on feedback we've gotten from our initial beta customers and so on.

And I think with these changes, it will significantly make it easier for people to adopt. So a lot of excitement around it. The numbers aren't huge at the moment, but we're on our plan. We're starting to do the marketing and advertising work that I think we've talked about on prior calls. And our expectation is that, that's going to pay off.

And the lessons we've learned from this will also apply as we get into the Azure marketplace on the Microsoft platform. And so I'm expecting that the acceleration there can go even quicker than what we've experienced in the AWS environment. But very positive about it.

Good. No, that makes sense. And on Azure, it sounds like it could be end of this quarter it could be getting -- '26. What steps do you have left there to get up and active?.

Well, we created a new kind of got from scratch variant of Shield for the cloud that makes it much easier to deploy in these virtual environments. And that's the 1 that we're going to target for Azure as well. So easier -- a better build for us, easier for the customer to adopt. The current AWS 1 has -- is coupled with pfSense, the open source firewall and the new versions that will go into AWS shortly and also Azure are just yield and not coupled to pfSense, and we think that's going to attract a broader set of customers. We'll still offer the pfSense version in AWS. So we'll actually have 2 properties in AWS, 1 with pfSense and 1 stand-alone.

And probably in a you price it, Tony?

Pardon me?

Does that change the way you price it, yes.

Not a whole lot because the pfSense is open source. So there's no royalties or anything like that associated with it. But what we heard from customers is, some of them want choice around which firewall they use. And while we like our technology, they had a different choice for firewall than what we chose, which was pfSense. So this will give customers broader choice. If they don't have a firewall and want 1 and like open source, they can use that. If they want to choose something else but still want our technology, they can have that choice as well.

Okay. Perfect. Well, that's all I had, guys. I appreciate the time and congrats on the progress this quarter.

The next question comes from Ed Woo with Ascendiant Capital.

Congratulations on the progress. My question is on your channel partner, PortNexus. What are you able to do there that is able to give you the successes? And is this able to be translated to other channel partners?

Yes. So what we're providing to PortNexus is endpoint security for their solution that's deployed in classrooms and other public sort of places. And that endpoint security is important so that the devices are effectively tamper-proof and safe from hacking and so on. I'm excited about it because as we've done trade shows with PortNexus and school administrators come by and see the demo and understand the capability, they get pretty excited.

And as I kind of hinted the sales cycle, it looks like it's pretty short. The feedback is I want this now kind of thing, which with other solutions, there's a much longer conversation that ordinarily takes place. So we're in a couple of school districts already, and I think as experience with this product grows, the excitement is going to only accelerate.

We're attending all the right trade shows with PortNexus, but also word of mouth is beginning to get out that this is a pretty cool solution. So at the end of the day, we've got great expectations for this.

Can you translate these opportunities to other channel partners? Or is this very specific just to -- for Nexus?

Well, we can certainly port it to or extend it to other endpoint kinds of solutions where network security is a fair amount importance, and we are looking for those opportunities, I'd say, the success with PortNexus will certainly be a good indicator for other potential partners as well. And so yes, I think it can extend and we are looking for those kinds of opportunities.

Great. And my last question is, as you rolled out in AWS and then also on the Azure platform soon. Do you care where your customer buys it? Is there any difference in profitability and R&D costs?

No impact on R&D costs. We're only at this point, extending it to U.S. customers. We're not in the global marketplaces. So that kind of, by definition, restricts where it's for sale, but it doesn't really impact our costs one way or the other.

And you don't really care where your customer gets it because the profitability margins are about the same.

Yes. Correct.

I wish you guys good luck.

The next question comes from Howard Brous with Wellington Shields.

Tony, congratulations on the increase quarter-over-quarter-over-quarter. I have a couple of questions. Can you discuss the revenue opportunity with OT Defender as an example?

I can talk about it generally. I mean, I think the nice thing about these is as compared to our Shield or Cord Nexus deals that tend to be smaller, these tend to be bigger sales. 10,000 above kind of opportunities. And so as you get one of these, there's a more meaningful impact in terms of revenue and overall sales. So obviously, that's important in terms of the revenue opportunity. The second thing is it's pretty widely recognized at this point that the OT environment is probably the biggest area of underinvestment from cybersecurity perspective.

And it also happens to be one of the biggest targets for nation state actors who in anticipation of some sort of aggressive activity would love to take out water systems and the electrical grid and communication systems and the things that are necessary to sustain life in most places around the world. A lot of the environment in these OT spaces is old gear that over time got hooked up to networks, but we're never ever designed to fend off the kinds of attacks and threats that are just a part of our modern day world.

And the reality is we've -- as a nation and even internationally, we've been a little slow to wake up to this aspect of cybersecurity it's particular kind of threat. So we think the market opportunities are really big. And we think we have a very cost-effective and now proven solution to this particular problem, and we're going to do everything we can to let everybody know what we've got and what its capabilities are.

So I think I'm pretty bullish on this. It's going to take work. But I'm excited not just from a revenue perspective for intrusion, but I'm excited for the protection, I think this can bring to some very vulnerable environments in our cities and states and critical infrastructure generally.

And then as I mentioned on the call, it also applies to commercial environment, shop floors and other manufacturing environments and so on. And all of those are pretty vulnerable at this particular point. If you can disrupt manufacturing or disrupt the production of goods, that's got a pretty serious economic impact. And I think our technology is good to help protect those environments as well. So a pretty broad-based market or surface for us to go after.

So the second question, the same question with revenue opportunity on Port Nexus school safety offering, which I -- from my understanding, should be critical with every school in the country.

Yes. That one is probably not as big as the critical infrastructure stuff. But this is one of those things where once you see it, you can't unsee it. And as we've experienced the trade shows, the school administrators love the simplicity of it and also the sort of capability that the PortNexus solution provides. And the critical thing there is visibility in that first 1 to 5 minutes of an incident where you have really good and better situational awareness than you do with any other solution that's out there.

And the first responders call that the critical first few minutes. If you can understand what's going on and have situational awareness, you can have a much better response, and that's what the PortNexus solution provides. So we're happy to be a part of that clearly. And I think just like you've seen police departments all over have body-worn cameras. I think ultimately, this is going to be a required thing in every school classroom or at least public school classroom in the country because it's just such a good solution. So we're happy to partner with PortNexus on that journey.

So my last question -- well, let me come back to the Port Nexus. Any sense for 2026 of a revenue opportunity?

I'd be wildly guessing at this point, Howard, but our eyes are towards up and onward from a revenue perspective. So we're -- I think, genuinely excited about the opportunity. Clearly, we've got to execute. Clearly, we've got to get in front of customers make the case and go forward. But I think we have all the right things in our briefcase to go sell, and we're as excited as I've ever been about it..

My last question, then 1 comment afterwards Shield Cloud revenue opportunity?

Again, as I said on the call, that's the place where innovation is happening. And so the growth in small, medium business, they've moved to the cloud and are moving to the cloud, and that's where the economy is growing the fastest. It's probably the biggest opportunity from a tech standpoint for that part of the market. And we'll see.

Again, we've got to execute. We've got to continue to work our marketing plan and demand gen plan, but we've seen a lot of other companies do it. And we're going to be a fast follower in terms of all of the things that we've seen work in that journey. So hard to exactly predict, but we have, I would say, great expectations.

At what level -- last question, what level of revenue per contract, would you make a public announcement $100,000, $1,000,000? It's not so much like PAUSE.

It's not so much like -- well, it's not so much -- in some cases, Howard, it's not the level of the dollar amount that would determine whether we can make an announcement. We actually signed some deals in Q3 that didn't produce revenue in Q3, but it will produce revenue in Q4, that by contract, we were prohibited from announcing. So the only way you'll see them is when revenue shows up after the end of a quarter. And that's not uncommon in the cybersecurity space. we'll announce whatever we can when we can. If it's significant. I'm not going to announce a $5,000 deal or a $10,000 deal or something like that. But if it's $1,000 or $400,000 or $1 million, I'll certainly announce it if I'm allowed to.

The next question comes from Jerry Yanowitz with -- he is a private investor.

Tony, do you believe your intellectual property alone could be worth multiples of your current stock price and I'm just looking for a simple yes or no answer.

Yes.

And based on your knowledge in the cybersecurity market, do you believe your products could integrate well with a larger cybersecurities company suite of products. Yes or no.

Yes. Yes, yes, I do. It may not always be the obvious first names that come to mind. But the answer is yes. It's I think obvious that, that could be very interesting and exciting for us..

At this time, there are no other questions in the queue. I'll turn the call back over to our host, Mr. Tony Scott, for any closing remarks.

Well, thankfully, the -- it looks like the government shutdown is close to coming to an end. And I think we all breathe a sigh of relief in that regard. We're looking forward to working with our government partners as we've talked about at some length already today. This is the opportunity that's in front of us right now is doing better protection for critical infrastructure, whether it's public sector or private sector, it's the biggest cybersecurity opportunity, I think there is out there.

And so with the shutdown behind us, I think it opens the door for us to move ahead. We'll let you know is when we can and as soon as we can when anything has developed. But as I said earlier, I'm pretty excited about the opportunity and look forward to having this call with you for the next quarter in our annual results.

So thanks, everybody, for your patience. We're working hard. We've got a great team on this, and I think we're making great progress. So talk to you all soon. Thanks.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good day, everyone, and welcome to the Intrusion Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Josh Carroll, Investor Relations. Sir, the floor is yours.

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 statements made during this conference call relating to the company's expected future performance, future business prospects, future events or plans may include forward-looking statements as defined under Private Securities Litigation Reform Act of 1995.

Please refer to our SEC filings for more information on the 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, and we undertake no obligation to update these statements as a result of 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. Tony?

Thank you, Josh, and good afternoon, and thank you all for joining us today. The second quarter of 2025 marked another positive step forward for Intrusion as we continue to make progress toward our goal of achieving sustainable growth and profitability. A few key highlights in the second quarter were yet another quarter of consistent revenue growth with Q2 marking the fifth quarter in a row of delivering sequential top line growth, near 0 customer churn, which we view as a testament to the value of our offerings, the operational deployment of our Shield critical infrastructure monitoring and protection capability, which expands the breadth and use of our core technology. We completed development work for our release of Intrusion Shield technology into the AWS marketplace.

We've seen encouraging results from our Q2 efforts on social media and other platforms of awareness and engagement. And enthusiastic reception for our technology with our solution partner, PortNexus, with respect to MyFlare Alert, the next-generation solution for improving response to safety incidents in schools and other vulnerable public institutions.

Now as we discussed during our first quarter call, critical infrastructure was one of the key areas in which we are making strategic investments to strengthen our portfolio of product capabilities and ensure that our solutions are evolving and addressing the fast-moving cybersecurity landscape. Our progress in growing this portion of our portfolio was recently highlighted by the $3.0 million extension and expansion of our contract with the Department of Defense, and that's already generating incremental revenue for us.

We continue to see critical infrastructure protection of operational technology environments as a highly promising market opportunity for Intrusion. As Homeland Secretary, Kristi Noem recently highlighted in her May 14, 2025 testimony before the House Homeland Security Committee, critical infrastructure sectors like water, energy, transportation and communications utilities continue to be and have been prime targets for nation-state cyber actors.

Through our ongoing government sales activities, we'll be spending additional effort to communicate and ultimately sell and deploy Intrusion's unique capabilities in this most important area of focus. Now for an update on a few of our other strategic initiatives that we have underway, all of which are aimed at helping position Intrusion for future growth. As I mentioned, we're on track with our previously announced plans to make our Shield Cloud product generally available on the AWS marketplace and anticipate product launch later this month with full and robust marketing and sales support activities that are critical to our success in this important space.

We have an active beta release in the AWS marketplace today and reporting our own website to use this release as we speak. Additionally, we also plan to make Shield Cloud available on the Microsoft Azure marketplace later this year. And while it will take some time for meaningful customer traction to be seen in our financial results, we do believe that offering our products through these 2 marketplaces will help drive long-term growth and incremental revenue for our business.

As for our partnerships, we are continuing to work closely with PortNexus to sell our Shield endpoint with their Myflare and PLEDGE Plus solutions. And as we noted last quarter, our solutions will help provide enhanced security on the endpoints used by PortNexus customers. Some of the use cases for the Myflare product include schools and courthouses where the solution provides for a panic button that in turn gives a near instantaneous video feed to law enforcement authorities. And that provides greater situational awareness and helps cut down on the response time during an emergency. We're proud to be a part of a critical technology solution that we believe is well positioned to generate strong market demand and revenue.

Now briefly on to our financials for the quarter. Total revenues for the second quarter were $1.9 million, representing a 6% increase compared to the previous quarter and a 28% increase on a year-over-year basis. This was largely driven by work performed under the Department of Defense contract awarded in the second half of 2024. Our operating expenses were up slightly during the quarter, and this was largely due to the continued investment in our business, both product and sales and marketing, which we will continue to do in a disciplined manner over the next few quarters to help support our growth.

Finally, we were pleased to see the passing of the spending bill on July 4. And while our pipeline of nongovernment opportunities remain strong, the new federal budget will help open the door for the expansion of our products into new government contracts. We continue to remain excited about the future here at 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 second quarter financials. Kim?

Thanks, Tony, and good afternoon, everyone. In the second quarter of 2025, revenues were $1.9 million, an increase of 6% sequentially and 28% when compared to the prior year period. The increase in revenue was driven by multiple new contracts and Shield logos in recent quarters, most notably including a contract with the United States Department of Defense utilizing both Shield technology and consulting services.

Consulting revenues in the second quarter totaled $1.4 million, which is flat when compared to the prior quarter and an increase of $0.2 million on a year-over-year basis. Shield revenues in the second quarter were $0.5 million, an increase of $0.1 million sequentially and up $0.2 million when compared to the prior year period. The increase in Shield revenue primarily reflects the work performed under the previously noted Department of Defense contract award.

As Tony noted, we are continuing to see strong demand for our 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 second quarter of 2025, which was flat on a year-over-year basis. As a reminder, gross profit margin will vary depending on our product mix.

Operating expenses in the second quarter of 2025 totaled $3.5 million, an increase of $0.1 million on a sequential basis and $0.4 million on a year-over-year basis. The increase sequentially was largely driven by an increase in R&D spending largely related to design work for expanding our critical infrastructure monitoring product offering. We may elect to further increase our investment in both product development and sales and marketing to accelerate the growth of our customer base, which will result in higher operating expenses.

The increase over the prior year period of $0.4 million is primarily due to a higher share-based compensation from equity grants made in the first quarter, timing of merit increases and minor changes to staffing. With that said, we will continue to remain vigilant with our spending to ensure we maintain a strong liquidity position. Net loss for the second quarter of 2025 was $2 million or $0.10 per share compared to a net loss of $2.1 million for the second quarter of 2024.

Turning to the balance sheet. From a liquidity perspective, on June 30, 2025, we had cash and cash equivalents of $4.7 million and short-term investments in U.S. treasuries of $3.7 million. We continue to have sufficient capital to fund our operations through the remainder of calendar 2025 and into early 2026.

With that, I'd like to turn the call back over to Tony for a few closing comments. Tony?

Thanks, Kim. While we're excited about the progress we've made in growing our business, we recognize that there's still a lot of work to be done in order to achieve our goal of generating sustainable growth and profitability. We do believe that we are on the right path forward and that the strategic investments we've made, combined with the improved conversations we've been having with both current and potential customers, both in government and in the private sector, give us confidence that we'll be able to drive consistent improvement in our financial results. This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Your first question is coming from Scott Buck from H.C. Wainwright.

Tony, I just want to be clear, the $3 million contract with the DoD, is that an expansion of services or just an extension of services you were already providing?

Yes. Great question. It's both really. It's a kind of a renewal of an existing contract, but it's a dollar value increase on top of what we had been running. So it's kind of both. It's an increase in scope, but a continuation contract. And we do expect more of that as this year and next year roll out.

Okay. I guess that's my follow-up, right, is -- what is the broader opportunity within the DoD? And how does the signing of the Big Beautiful Bill serve as a catalyst or a tailwind in your efforts there?

Well, I'm pretty excited about it. I mean the DoD work we're doing covers some of the places that DoD is responsible for. But as I mentioned in my remarks, Kristi Noem specifically called out domestic opportunities for water and utilities and communications and so on. And the exact same solutions that we've created for DoD, which are being deployed largely outside the Continental U.S., those solutions are as applicable internally inside the Continental U.S. So we're going to pursue that with vigor. And I think the opportunity domestically is perhaps even larger than the international opportunity.

So we're excited about it. We don't have anything landed yet, but it's clearly a focus of this administration. So we're going to be there, and we're going to play hard to win.

Great. That's helpful. And then I'm curious in terms of the marketplaces, what can you guys do in terms of sales and marketing to get eyeballs on Intrusion Shield within these marketplaces?

Well, we've studied very closely the things that have been successful in those marketplaces and the practices that they've followed in terms of creating awareness and promoting and creating examples of where their specific technologies are appropriate. And so we have a playbook that we're going to follow those best practices. And where we see failures, it's in companies that didn't follow some of these best practices or failed to execute on some of the things that are known to work. So we're fully committed, and we're going to spend some money, but we expect to have commensurate results.

Perfect. And then last one, just in terms of some of your reseller partners, kind of where do you stand with them? You kind of mentioned it or touched on it during the prepared remarks, but just a little additional color there would be very helpful.

Well, I think I've said this in prior calls, but we're continuing to refine our reseller space. We've had some resellers that frankly, didn't do much for us, and we've dropped them, and we've added some new ones. I think we're getting better at understanding which of those are likely to be more successful than, say, others. And we're doing a better job of qualifying those partners. And in turn, they do a better job of qualifying potential customers.

That said, we're still focused primarily on MSPs and MSSPs, and we've been doing a number of trade shows and places where we can meet those specific kinds of customers with really good reception. So we're going to continue that this fall and hopefully see some great results from that. But we're constantly refining and learning as we go.

Your next question is coming from Ed Woo from Ascendiant Capital.

Yes. Congratulations on the progress. There seems to be a lot of emphasis on federal opportunities. What about enterprise opportunities? And have you seen any big shift in either budgets or in sales cycles?

Well, the government opportunities are kind of obvious, I guess, because of the sort of focus and emphasis. And it's also a marketplace that, frankly, we've been in business with for quite a long time in Intrusion's history. So it's appropriate for us to mine that. I think the shift that we're seeing there is we're using a lot of our Shield based technology. And we also have a healthy consulting business there. In the corporate and enterprise sector, we're a new entrant in that, and we're continuing to pursue some opportunities in that space. But we think our best entry in the market at this point is through managed service providers and managed service security providers. And so that's where we're putting a lot of interest and effort, I should say. But we're not going to turn away enterprise business, but it's not our core focus at the moment.

Have you noticed any significant shift either federal or enterprise in terms of the budgeting or in terms of sales cycles, whether anybody want to delay purchasing big software contracts?

Well, I think there's still long cycles from everything I can see, talking to my friends and former colleagues and so on. They are under a lot of pressure to validate and justify cybersecurity spend and they're, in many cases, looking at where am I getting value, particularly in spaces where they're vulnerable. So phishing continues to be the #1 entry point for all kinds of bad things to get into your environment.

And supply chain is also a huge focus. We're also seeing quite a bit of interest in sort of OT technology protection as opposed to IT protection. The IT protection space is pretty well, got a lot of people playing in it and a lot of saturation. But the OT environment, I'm talking about manufacturing floors and other things like that seems to be a space that's not quite as crowded and a place that we can, I think, play well. So we're going to undertake some additional efforts in that OT space.

Your next question is coming from Howard Brous from Wellington Shields.

Tony, 5 quarters in a row of sequential growth. I'll take nickels, dimes, quarters, or dollars. So first, congratulations on that. Secondly, critical infrastructure. When you talk about schools, could you give us some timing and visibility of what you're talking about in terms of, say, revenue and win?

Yes. So the schools with the PortNexus thing, we did some trade shows with them over the summer. Schools tend to go to their trade shows over the summer and then actually purchased during the fall and winter months as they get into their budget years and school years and so on. One of the things that kind of impressed me when we were showing administrators of school districts, our solutions at some of these trade shows was how quick the sales cycle was. We would do a 10- or 15- or 20-minute demo and the reaction we'd get is, boy, I want this, which in our traditional products, as you know, sometimes is months or longer in terms of getting to a point where they're that enthusiastic about buying.

So I'm encouraged by those kinds of receptions. On the other critical infrastructure stuff like protecting communications and water wells and utilities and those kinds of things, I think that's going to be a longer sales cycle because these are typically larger institutions. And in some cases, they have dedicated cybersecurity teams who are going to want to test and vet the solutions and so on. But as we look at the landscape, we don't see as much competition or at least perceived competition in those spaces. So I think we've got room to spread our wings and impress people in those marketplaces.

Can you give us a sense of -- given the opportunities very near term of when you think you might breakeven?

Well, we could have a couple of big contracts, and that would get us there quickly. And if it's a bazillion small ones, it's probably not as quick. But I'm not going to give a date projection, but it's absolutely our goal. And Kim and I think about this every single day about when and how we can get there.

So our BDIs are on the target, and we're aiming for that as soon as we can reasonably get there. We're not going to go buy business, only to have it go away, but we want sustainable, profitable long-term business, and that's what we're going for.

[Operator Instructions] Your next question is coming from [indiscernible].

[indiscernible] financial adviser. I did notice that you, took over as CEO in 2021 and a substantial improvement in the net loss in the company. So I applaud you on that. One of the things I wanted to ask you is when do you anticipate having sustainable improvement in your cash flow?

Well, again, it's kind of related to Howard's question. We have a number in mind, which is not that far away that we think would get us to cash flow breakeven or positive EBITDA. And as I said earlier, I think a couple of good contracts get us there or a bunch of smaller ones, obviously.

But I think given all of the initiatives that we've launched this year between this infrastructure and OT product, the marketplace with AWS, later on with Azure and our endpoint product and other developments that we have underway, there's multiple avenues for us to get there. So I'm more encouraged than ever that it's achievable. And I'm looking at nearer term rather than long-term. So, however, you want to define those things, but it's certainly our goal. And as a major investor in the company, it's important to me that we get there. So I'll be as excited as anyone when we do.

Who are some of your major competitors?

Well, it's a great question. We -- there's -- what I'd call perceived competitors and then real competitors. And one of the things that we've struggled with is if you look at the offerings of a lot of cybersecurity companies, at a high level, it sounds like they do some of the same things that we do. But when you get down to the details and understand what they actually do, there aren't really any competitors.

So as an example, people often think that we do the same thing as, for example, Cisco Umbrella, which is a product name that Cisco has. But when we do a side-by-side comparison, we find that there's very little overlap, and we're very unique in our space. And same thing with offerings from Palo Alto Networks or CrowdStrike or many of the other people in the cybersecurity space.

And up until now, we've not spent a lot of money marketing and what have you to try to explain to people what those differences are, but that changes this year with the introduction of our new products and our different vehicles to market that we've already talked about. So we're going to spend some money this year talking to people about our differentiation and why we think we're necessary and better than some of the things that they might perceive as competitive products. Long-winded answer, but it's something we've been very focused on.

Well, I think it's very important for you to get some of the big money backing you, approaching different private investors or mutual fund companies that can give you an influx of capital to help you with that marketing.

For sure. And I would say, last year, we needed that badly. Right now, we're sitting in a pretty good cash position. And I meant to mention it on the call, but Kim alluded to it, we don't see a need to raise capital anytime in the near future, at least until next year at the earliest. And with any luck, we won't need to do it at all.

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.

Well, thanks, everyone. I'm really looking forward to an exciting Q3 and Q4 this year. Our teams are highly motivated and energized to go do the work that we need to do to continue our success. We're prepared to continue our product innovation journey, and we've got a bunch of exciting things in the hopper that I think will excite our customers. We're trying out some of our new messaging at a trade show this week, and it seems to be working pretty well. So I'm looking forward to more of that.

Kim and I are going to be doing a number of investor and non-deal roadshows this fall. And so we're looking forward to those conversations. And hopefully, it convinces a bunch of people to buy Intrusion stock and help our stock price continue to grow. And I'm looking forward to sharing our Q3 results. But in the meantime, I'm wishing everyone a healthy and prosperous end of summer and fall, and we'll look forward to talking with you when we share our Q3 results. Thanks, everybody.

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