Intrusion Q3 2026 Financial Results Conference Call - INTRUSION INC

Explicit Guidance:

• No specific numerical revenue, earnings, margin, or cash flow guidance provided for future quarters or full years.
• Management stated they "do not have... guidance" regarding the pipeline or future revenue numbers at this time.
• Annualized run rate noted at $10.7 million based on Q3 2026 revenue (highest since Tony Scott joined), with a stated goal to "grow smartly from there."
• Cost reduction: Approximately $750,000 in annual expense run-rate reduction (roughly 70% of a previously targeted $3 million target) expected to be realized shortly, equating to approx. $187,500 per quarter.
• Debt: Net debt/notes payable remaining post-conversion estimated at roughly $1 million.

Business-Segment Outlook:

• Cybersecurity & Critical Infrastructure: Expect "meaningful revenue growth" driven by expanding sales of critical infrastructure solutions to additional U.S. government agencies and commercial customers; increased federal agility in acquisition processes anticipated to shorten sales cycles.
• Texas Government: Expect to generate "additional meaningful revenue over the next few quarters" via expanded use of technology and consulting services; current contract fully offsets Department of War loss, but future awards are "not guaranteed."
• Port Nexus / MyFlare Alert:
  • Expansion to entertainment venues planned for 2027.
  • Continued deployment expected in Texas, Iowa, Missouri, Arkansas, and Ohio (following statewide grant program launch).
• Vigil Agent Integration: Full integration expected to take 4 to 6 months; post-integration, the combined AI-driven platform is expected to drive recurring revenue growth and unlock commercial opportunities previously difficult to sell standalone.
• Commercial Reach: Focus on deepening relationships and leveraging channel partners to expand end-user reach; expecting "increasing commercial subscription revenue."

Market and Competitive Outlook:

• Demand Trends: "Growing dramatically" interest in protecting critical infrastructure from nation-state adversaries; federal and state agencies seeking faster, more agile acquisition processes to adopt innovative solutions.
• Pricing/Volume: Potential contracts anticipated in "$1 million, $2 million, $3 million chunks."
• Share Shifts: Anticipated shift from government-heavy revenue mix (97% YoY to 67% in Q3) toward a broader commercial customer base via Vigil Agent integration and channel partners.
• Structural Changes: Management believes bipartisan support for cybersecurity will sustain demand regardless of election outcomes or political shifts.

Macro / Industry Outlook:

• Government Budgets: Acknowledged "uncertainty remains" around federal and state budgets, but maintains confidence that cybersecurity remains a high-priority, bipartisan need.
• Regulation/Tariffs: No specific mentions of tariffs; focus remains on evolving cybersecurity threats from nation-states driving regulatory and operational demand.
• Sales Cycle: Anticipated acceleration in government sales cycles due to federal government efforts to be "more agile, more effective" in contracting.

Strategic Initiatives:

• Acquisitions: No acquisitions currently "on the docket"; strategy remains "opportunity dependent" rather than time-bound to integration completion.
• Leadership Change: Stephanie Lindley appointed to lead commercial sales and Vigil Agent business effective immediately to drive growth execution.
• Cost Restructuring: Continued elimination of non-performing expenses; "voluntary reductions in cash compensation" for management/board in exchange for equity to conserve cash; 5 FTEs already eliminated.
• NASDAQ Compliance: Targeting to regain compliance with $1 bid price requirement by May 2027; primary strategy is revenue growth, though a reverse split is considered a contingency if "absolutely necessary."
• Q4 2026: Management expects to announce new sales wins in the first five weeks of Q4.

Risks and Headwinds to Outlook:

• Contract Uncertainty: The Texas state agency contract awards are "not guaranteed" beyond current scope; loss of Department of War revenue highlights reliance on single large contracts.
• Integration Risk: Vigil Agent integration is "not complete" and requires "a lot more work"; delays or failures could impact the projected "comprehensive cybersecurity platform."
• Financial Liquidity: Current cash on hand is $0.4 million; ongoing net losses and reliance on borrowing/dilution remain a risk until revenue exceeds costs.
• Bid Price Compliance: Risk of delisting if revenue growth does not raise stock price above $1 by May 2027.
• Execution Risk: Heavy reliance on engineering resources for complex solutions; potential for cutting necessary resources if cost-cutting goes too far.

Management Tone on the Future:

• Confidence Level: "Encouraged" and "resolute"; expresses optimism regarding the "expanding pipeline" and market conditions, particularly in D.C. and Texas.
• Hedges: Frequent caveats that opportunities must translate to contracts; explicit warnings that additional awards are not guaranteed and integration is a long journey.
• Priorities: Shifted focus from pure cost-cutting to "improving revenue" as the primary driver for profitability and share price; views current cost reductions as a means to preserve cash for growth, not the sole solution.

Miscellaneous:

• Stock Price Strategy: Management indicated they will "do what is necessary" to maintain NASDAQ listing, with revenue growth being the primary preferred path over a reverse split.
• Q4 Visibility: No specific numbers, but confirmed new sales will be announced in early Q4.
• Capital Structure: Conversion to preferred shares completed, leaving approx. $1M in notes payable.