Intrusion Q3 2026 Financial Results Conference Call - INTRUSION INC

Financial Performance:

• Third quarter 2026 consolidated revenue reached $2.7 million, representing an 84% sequential increase and 36% year-over-year growth.
• Vigil Agent contributed $0.8 million (28% of revenue) in its first full quarter; pre-acquisition Intrusion revenue was $1.9 million, a 2% decrease from the prior year.
• First nine months 2026 consolidated revenue was $5 million, down 11% year-over-year, though the $3.9 million Texas state contract fully offset the loss of Department of War revenue.
• Gross profit margin declined to 55% in Q3 (down from 66% in Q2 and 77% YoY) due to lower-margin Vigil Agent managed services (23% margin) and the Texas consulting contract; Vigil Agent contributed $0.2 million in gross profit.
• Operating expenses totaled $4.3 million; excluding Vigil Agent and one-time costs, pre-acquisition operating expenses decreased 12% sequentially to approximately $3.0 million.
• Net loss for Q3 was $2.9 million ($0.12/share), compared to $2.1 million ($0.01/share) YoY, driven by higher operating expenses and interest expense of $397,000.
• Cash and cash equivalents as of September 30, 2026, were $0.4 million, with remaining net debt (notes payable) estimated at $1 million following recent share conversions.
• Government customers represented 67% of Q3 revenue, a significant shift from 97% in the prior year, indicating diversification toward the commercial sector.

Guidance and Future Outlook:

• Management anticipates revenue performance to improve over time, driven by the Texas state agency contract, expanding critical infrastructure sales, and growing recurring revenue from Vigil Agent.
• The company operates at an annual revenue run rate of $10.7 million based on Q3 results.
• Future growth is expected from the conversion of a strengthening pipeline in Washington D.C. and state/local agencies, with potential contract awards ranging from $1 million to $3 million.
• Cost reduction initiatives have achieved approximately 70% of a targeted $3 million annual run-rate reduction, with further savings expected.
• No formal guidance on profitability timing was provided, though management emphasized that increasing revenue is the primary lever to achieve break-even status.

Business Segments and Product Lines:

• Vigil Agent: Integration is ongoing, expected to require four to six months to complete; management views the combination of Intrusion's threat intelligence with Vigil Agent's AI-driven security operations center as a key differentiator.
• MyFlare Alert (Port Nexus): Deployed in 9 Texas dispatch centers and 4 schools; 2 centers/3 schools in Iowa; 4 centers in Missouri; planned expansion in Arkansas; actively pursuing Ohio's new statewide school safety grant program.
• Critical Infrastructure: Targeting government and commercial contracts to defend against nation-state cyber threats; expanding the SHIELD product line through commercial channels.
• Commercial Sales Leadership: Stephanie Lindecky assumed leadership of commercial sales and the Vigil Agent business effective immediately.
• Product Expansion: Port Nexus plans to extend MyFlare Alert capabilities to entertainment venues in 2027 for real-time situational awareness.

Market and Competitive Landscape:

• Cybersecurity maintains bipartisan political support, insulating the company from midterm election impacts on government budgets.
• Federal agencies are actively streamlining acquisition processes to become more agile and adopt innovative solutions faster.
• Management reports high interest from multiple government agencies regarding critical infrastructure protection solutions.
• The company differentiates itself through a proprietary threat intelligence platform combined with managed AI security operations.

Risks and Challenges:

• Liquidity & Compliance: Company received a second 180-day extension from NASDAQ to regain compliance with the $1 bid price requirement; potential reverse split remains a contingency if sales growth does not improve by May 2027.
• Profitability: Continued net losses and reliance on capital raises pose dilution and creditor concerns.
• Integration: Vigil Agent integration is not yet complete, with operational efficiencies and synergies still being realized.
• Customer Concentration: While diversifying, the company still holds significant exposure to U.S. government contracts.

Management Commentary and Tone:

• Management tone is resolute and cautiously optimistic, acknowledging recent setbacks but emphasizing stabilization and progress.
• CEO Tony Scott expressed confidence in the pipeline and the strategic value of the Vigil Agent acquisition.
• Leadership is focused on disciplined execution, cost efficiency, and revenue generation as the primary path to regaining market compliance and profitability.
• CEO and board voluntarily accepted cash compensation reductions in exchange for equity to conserve cash.

Analyst Questions and Answers:

• Vigil Agent Integration: Confirmed not complete; timeline of 4-6 months for initial plans, with ongoing roadmap development thereafter.
• Acquisitions: No deals on the immediate docket; future M&A depends on opportunity and capital availability, not contingent on full Vigil Agent integration.
• Profitability & Cost Cutting: 70% of $3 million annual cost reduction achieved; management refuses to cut expenses critical to securing large contracts.
• Sales Cycle: Federal agencies are accelerating procurement processes due to recent critical infrastructure attacks; sales cycles appear to be opening up.
• NASDAQ Compliance: Strategy focuses on organic revenue growth to meet bid price requirements; a reverse split is a last resort if necessary.
• Pipeline Visibility: No specific quantifiable pipeline data disclosed due to early-stage negotiations, though described as "as good as it's ever been."
• Stock Compensation: Share-based compensation increased to $0.5 million in Q3, partly reflecting management compensation restructuring.

Other Key Points:

• Unplanned professional services and severance costs were incurred due to prior staffing reductions.
• Five full-time employee (FTE) positions were eliminated as part of cost-saving measures.
• The Texas state contract involves consulting revenue initially, with potential for future SHIELD deployments.
• The company highlighted the strategic synergy between Intrusion's Shield technology and Vigil Agent's Oracle AI engine as a unique market offering.