INTRUSION INC(INTZ)Q1 2026 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Intrusion, Inc.'s First Quarter 2026 Earnings Conference Call and webcast. Operator instructions were provided at the start of the call. 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 Defense, 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 Defense. Our revenues during the first quarter were once again impacted by delays in finalizing an expected contract extension with the Department of Defense.

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 Defense throughout 2026. And while the Department of Defense 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 two 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 were $0.9 million, a decrease of 40% sequentially, which was directly the result of the delay in the incremental funding of the Department of Defense contract that I noted earlier 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.

Well, thank you, Kim. As I noted earlier in the call, as we move beyond the headwinds of the past two 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 instructions were provided. Our first question today is coming from Ed Woo with Ascendiant Capital.

My question is on the Department of Defense 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 be recognized all at once? Or is it just kind of extended out from when it's actually approved going forward? 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 enterprises or government spending on IT, specifically on cybersecurity?

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 when the contract comes in, we'll bill forward from that point, but we wouldn't be able to reverse recognize revenue from prior periods in that particular case. However, this is an important capability, the customer there is very happy with the solution, and we look forward to getting this resolved. Regarding the pipeline, it looks to us like spending is still increasing slightly. One of the things we've talked about before is AI is creating additional concern because it lowers the barrier to conceive and launch sophisticated attacks, and that's put extra urgency into people's desire to have more advanced solutions. I don't expect that to change much in the rest of 2026, and we think we should get our fair share of that demand.

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. Where are you deploying it? What size is this as it 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, probably about two months ago. We now have four active deployments in Iowa with several more scheduled over the next few months. We're replicating that sales motion in some of the other states that I mentioned on the call earlier. The enthusiasm level is high. One of the constraints is the budget cycle—this is primarily counties and school districts. We've heard lots of comments from both schools and counties that they love the solution and would put requests in their budget packages, and then it's a question of whether those budget packages get approved at the local level. That will vary across the country and across various states. But I'm optimistic because of the reception we get whenever we show this to schools, sheriffs or law enforcement officials. Ultimately, I hope we're in every county in this country because it's such a grand and cost-effective solution to the 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? I don't understand that.

I agree with you, Howard. The problem is not with school administrators or with the police force; it's squeezing this into an already tight budget. Schools are not flush with cash in many cases. But we're also working at the state and federal levels to help make grant money and other funding available so that schools, even if they can't afford it in their own fiscal budgets, could take advantage of this solution. There are a lot of different ways to address that, and I agree I don't know why anybody would ever say no when they see the value.

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

It's one day or two at most 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?

For Intrusion, we license our network protection technology to PortNexus, so the licensing revenue is nearly 100% margin for us because PortNexus does the install. Our only direct costs are marketing assistance, trade shows and related activities. In the case of sheriffs where we also install an appliance—one of our Shield boxes—that has the same margin profile as our other Shield business. When we put in hardware at a sheriff's office, it's in the mid-70% gross margin range, so it's 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. Word of mouth is starting to get around on this, and when we do events more people say, 'I heard about this, I want to learn more.' So I expect that will help us as well.

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

I don't know the exact number, Howard, but it has to be at least that. We're not talking just about public schools—there are private schools, grade schools, high schools, preschools, trade schools and many other venues. This is a great solution for courtrooms, sports facilities or any place with potential for an incident where situational awareness is critical. Right now we're focusing on schools and sheriff's departments, but nothing precludes other venues from adopting the solution.

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

Overall, we think the business will be cash flow positive at the end of 2026. The PortNexus initiative will be a contributor to that, but it's not the whole answer.

At this time, there are no other questions in the queue. 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 to be several big wins for us over the coming months. The team we put together to go after these opportunities is highly skilled, highly experienced and can help us in areas where we have not had 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. Our team now has the skills, 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. We've got a whole bunch of other initiatives for the remainder of the year. Stay tuned. We're pretty excited and everybody here is working really hard to make sure that 2026 takes us in a new direction from where we've been. I appreciate the support, and we'll talk to you by next quarter, but probably a few times in between. Thank you.

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