Intrusion Inc. (INTZ) Earnings Call Transcript & Summary

Appreciate that, and glad to have everyone joining us. With us today are our President and Chief Executive Officer, Tony Scott, and our Chief Financial Officer, Kimberly Pinson. A webcast of this call is available, and a recording will be kept in the Investor Relations area of our website. Before I turn things over to Tony, I'd like to remind everyone that remarks on this conference call regarding the company's anticipated future performance, future business prospects, future events, or plans could contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. To get a fuller picture of the particular risk factors that might make our actual results diverge materially from the projections we describe on today's conference call, please see our SEC filings. Any forward-looking statements made on this call rest on information we believe as of today, and we assume no obligation to update those statements because 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 when we believe it is useful to investors or when we believe it will help investors better understand our performance or business trends. Having said that, I'll now hand things over to Tony, who has a few words to kick us off.

Appreciate that, Josh, and good afternoon everyone—thank you all for joining us today. For Intrusion, the third quarter represented yet another meaningful period, since we continued to make steady progress in stabilizing the company, integrating our recent VigilAigent acquisition, and advancing our wider growth plan. Quarterly revenue climbed 84% sequentially and 36% year over year. The factors behind this were our contract with the Texas State Agency plus the initial full quarter of revenue contribution from VigilAigent. On the whole, we stay encouraged about the opportunities in front of us, and we think our growing pipeline of business opportunities leaves us well placed to support growth going forward. Now, as I mentioned on our second quarter call, we keep seeing further opportunities in the State of Texas to broaden the use of our technology and our consulting services, and as a result we expect to bring in additional meaningful revenue over the coming few quarters. We are also still working with other state and local agencies as we seek to apply the experience we have built in Texas toward winning additional contracts. Lately I have taken several trips to Washington, D.C. We met with officials from several government agencies, and each one expressed enthusiasm for rolling out our cybersecurity offerings—among them our critical infrastructure solution—at important sites, so as to guard against the escalating cyber danger coming from nation-state adversaries. The level of involvement and curiosity coming from these government agencies has been really encouraging to all of us. With critical infrastructure defense against cyberattacks getting more and more attention, we see a substantial chance for revenue growth at Intrusion, because our offering was designed from the ground up to safeguard these essential facilities against ever-changing cybersecurity dangers. Now, ahead of sharing a few other business updates, I want to spend a brief moment discussing the latest midterm elections and what they signify for Intrusion, since we recognize that given how closely we collaborate with the government, this subject is front and center for a lot of investors. While there's still some uncertainty regarding the future of federal and state government budgets, it's worth pointing out that cybersecurity has historically enjoyed broad bipartisan backing. We believe that safeguarding government networks, critical infrastructure, and sensitive information will remain a priority regardless of which party holds power at the federal, state, or local level. We take pride in the work we do with government at every level, and we look forward to continuing to play a critical role in protecting our nation's security through our advanced cyber capabilities. On previous calls, I've mentioned our partner PortNexus and the MyFlare Alert solution, which leverages Intrusion technology. With this public safety offering, police and those responsible for school safety gain close to real-time awareness whenever something happens on a campus. Across Texas, the system now runs in nine dispatch centers along with four schools. In Iowa, two dispatch centers and three schools are live, while Missouri has four dispatch centers up and running. Arkansas has several rollouts scheduled before this quarter ends. Beyond that, Ohio just introduced a grant program at the state level to pay for school safety steps, MyFlare Alert among them, and the PortNexus team is vigorously chasing the enormous opportunities available there. PortNexus additionally intends, during 2027, to broaden its offerings so that comparable alerting functions reach entertainment venues—settings in which fast notifications and live situational awareness prove essential for protecting lives, as recent incidents around the country have shown. We anticipate carrying on our collaboration with PortNexus as those offerings reach the market. Moving on to VigilAigent: as mentioned at the start of this call, the third quarter was the first complete stretch in which VigilAigent added to revenue, producing $0.8 million. As we said last quarter, we regard VigilAigent as a key element of our plan to construct a wider AI-driven cybersecurity platform and grow our recurring revenue. Bringing together Intrusion's own threat intelligence and cybersecurity tech with the managed security service capabilities of VigilAigent, we think we're now in a stronger spot to offer a full cybersecurity platform that meets what our customers need as those needs keep changing, in both commercial and government markets. We're still focused on broadening our commercial reach, going deeper with the customers and partners we already have, and finding ways to use the complementary strengths of Intrusion and VigilAigent to generate further growth. I'm also happy to share that as of today, Stephanie Landecky is taking on leadership of our commercial sales activities, which includes the VigilAigent business. Stephanie has deep expertise in sales and leadership, spanning commercial sales, channel development, strategy, business execution, and partner development. We're thrilled to have her on board and eager to see the difference she'll make in driving our growth objectives forward. Beyond these growth efforts, we've kept taking intentional action to strengthen our cost structure and operating efficiency through expense-reduction steps — among them, management and our board of directors chose on a voluntary basis to take less cash compensation in exchange for equity, which is part of a wider push to preserve cash. Kim will walk through more specifics on these cost-saving initiatives in a moment. Last, as a few of you might have noticed last week, we announced that NASDAQ gave Intrusion another 180-day extension for getting back into compliance with the $1 bid price requirement. In the end, we think that expanding revenue by turning pipeline opportunities into business and bettering our cost structure are the key things for strengthening how the business performs and for regaining compliance with the minimum bid price; we're staying focused on disciplined execution and on building long-term, sustainable financial growth. So with that, I'd like to hand the call over to Kim, who will walk through our third quarter financials in more detail. Kim?

Appreciate that, Tony. Revenue for the third quarter of 2026 came in at $2.7 million, which is an 84% increase sequentially and 36% higher than the same quarter a year earlier. During its first full quarter as part of Intrusion, VigilAigent added $0.8 million, or 28% of consolidated revenue. Pre-acquisition Intrusion revenue was $1.9 million, which is down $48,000, or two percent, from the prior year quarter. With VigilAigent now included, our commercial customer base has become broader. U.S. government customers made up 67% of third quarter revenue, versus 97% in the prior year quarter. Consolidated revenue for the first nine months of 2026 was $5 million, an 11% decline from $5.6 million in the same period last year. The $3.9 million Texas State Agency contract that was awarded in May has fully offset the revenue we lost from the Department of War. So far, the Texas engagement has produced consulting revenue, and it may also open up opportunities for Shield deployments, though we can't guarantee additional awards. Our expectation remains that revenue performance will improve over time, with support from several growth drivers that are ongoing. Among these are growing sales of our critical infrastructure solutions to more U.S. government agencies and commercial customers, further developing our key partnerships, continued revenue contributions from our State of Texas contract, growth in recurring revenue from VigilAigent, and rising commercial subscription revenue as newly signed channel and strategic partners extend the reach of our solutions across their end-user customer bases. Gross profit margin for the third quarter was 55%, versus 66% in the second quarter of 2026 and 77% in the prior year period. That lower margin reflects our revenue mix, including VigilAigent's managed cybersecurity services and lower margin consulting work under the new state agency contract. VigilAigent delivered roughly $0.2 million of gross profit at a 23% margin. Shield revenue accounted for five percent of consolidated revenue, compared with 25% a year ago. Operating expenses for the third quarter of 2026 were $4.3 million, versus $3.6 million in the prior year quarter. VigilAigent accounted for $0.8 million of operating expenses. Excluding VigilAigent, pre-acquisition Intrusion operating expenses were $3.4 million, down $0.2 million, or five percent, from the prior year quarter. Those expenses included unplanned professional services and severance tied to staffing reductions, and those are one-time in nature. Recently we've taken steps to bring our expenses down, including eliminating five FTEs, voluntary cuts in cash compensation for senior management and board members in exchange for equity, ending the use of certain contractors, and reducing discretionary sales and marketing expenses that weren't generating the expected returns; we're continuing to assess additional opportunities that will help us improve our cost structure while making sure we keep the resources needed to pursue our longer-term growth opportunities; sequentially, pre-acquisition Intrusion operating expenses were approximately $3.4 million in both the second and third quarters. Share-based compensation rose from approximately $0.1 million to $0.5 million, including awards tied to merit increases and voluntary reductions in cash compensation by management and directors. If we leave out share-based compensation for each quarter, pre-acquisition operating expenses went down from roughly $3.4 million to $3 million, which works out to about $0.4 million less, or 12%. That comparison is useful in illustrating how much progress we're making on cutting expenses while still keeping the resources needed to support growth. For the third quarter of 2026, net loss attributable to Intrusion came to $2.9 million, or $0.12 per share, versus a net loss of $2.1 million, or $0.10 per share, in the third quarter of 2025. That increase came from higher consolidated operating expenses as well as financing costs. Interest expense stood at $397,000, compared with $17,000 a year earlier. Now, looking at the balance sheet through a liquidity lens, as of September 30, 2026, cash and cash equivalents totaled $0.4 million. With that, I'd like to hand the call back to Tony now for a few closing remarks. Tony?

Thanks, Kim. We have achieved considerable improvement in bouncing back from a number of unplanned setbacks that took place late last year and earlier this year, which we have covered on earlier calls, and the results we posted in the third quarter show the work we have done to steady the business, bring VigilAigent into the fold, and push our growth strategy forward. Looking forward, the trends we see give us encouragement. Dramatically rising is interest in safeguarding critical infrastructure. Our pipeline of quality opportunities keeps getting bigger, and pairing our threat intelligence with the managed security capabilities of VigilAigent is producing a stronger platform that delivers AI-driven cybersecurity addressing the changing threat landscape our customers confront in both commercial and government markets. We believe this progress is helping to build a stronger foundation for sustainable growth, and we stay committed to disciplined execution as we pursue profitability and long-term value creation for our shareholders. Last, I want to thank our employees for their hard work as well as our shareholders and partners for their ongoing support; with that, I will now hand the call to the operator for Q&A.

Yeah, great work on the progress. I wanted to ask whether the VigilAigent integration is finished. And how do you see future acquisitions going? Does that remain a central piece of your strategy?

Appreciate that, Ed. No, it isn't finished yet. I'd describe us as being at an early stage of that process. Still, even after the quarter closed, we've picked up a few wins that, in my view, show what success could look like as more integration arrives. I feel fairly optimistic about where this is headed, though quite a bit of work remains ahead of us across the coming four to six months so that every one of our plans on that front gets done. On the acquisition side, we're constantly on the lookout for the right fit. Nothing is currently on the docket or on the menu right now, but should the right opportunity appear and we're able to secure the right capital backing for it, we'd definitely be keen to go after it.

I have a brief follow-up question. Would you prefer to hold off until VigilAigent has been fully integrated within four to six months, or does it truly hinge on whichever opportunity you happen to see?

Yeah, I’d say it depends more on the opportunity than on ensuring the integration is finished. Even after our initial plans are completed, we’ll still have a roadmap of things we want to do. In some ways, that work is never-ending—it won’t come to a stop at any point.

Great. Well, thanks again. Congratulations, and I wish you guys good luck. Thank you.

Thanks a lot. I have two quick questions. First, could you give me some detail on the employment contract for the company's CEO? Second, do you have any comment on the eight-K filed today? Thank you.

We have no comment on either.

Thank you. Tony, congratulations on the revenue growth. It seems you're headed in the right direction. On a prior call, you said that VigilAigent's Oracle AI engine paired with TraceCop provides abilities that neither one could deliver on its own. Do you see opportunities to grow revenues through that combination?

Absolutely. What makes that sensible, I think, is that we already know Intrusion's capabilities extremely well. Selling it standalone has historically been a struggle for us, but when you've got a platform such as VigilAigent and you're able to add this unique capability of ours to it, that gives you a far more effective solution. The things I loved about VigilAigent were the speed, the accuracy, the cost savings, and all of that which comes from running an agentic AI security operations center. But, as I said earlier, there's more work for us to do on the integration, and we need to fully develop the roadmap going forward. So I think there's genuinely great promise there. We had a win this quarter, as I mentioned, selling Intrusion Shield technology through the VigilAigent team. So I think that's a forecast of things to come.

Great. That sounds excellent. I really value your answer. I suppose what matters most to investors is this: reaching break-even every quarter essentially keeps the fear of bankruptcy away from us. Every time we go back to the well and borrow a bit more money, we get pushed a little deeper into dilution, and we become a little more afraid that the creditors will say, "Hey, that's enough." What steps can we take to cut payroll down to the point where it lines up with revenue, so that every quarter we are at least at break-even and whatever new business arrives adds to it?

Well, clearly, at some point revenue has to be greater than costs. Up to now we have run things pretty lean. The solutions we offer are quite complex, and merely making them viable takes a great deal of engineering time and effort; so our best hope in that respect is growing revenue. Kim and I look at expenses every day and at what we can do to become more efficient; we have pretty much continuously swapped some higher-cost items for lower-cost ones, and we will continue doing that. But the promise, and I believe the thing we work hardest on each and every day, is improving revenue. And I mentioned during the call that I have been to D.C. a couple of times over the last few weeks. I am heading back again next week. Those conversations are encouraging. What is nice about those potential contracts is that when they come, they arrive in million-dollar, $2 million, $3 million chunks. Winning those is quite important right now, while we are trying to generate more revenue. That is where our focus lies; in the meantime, we will keep an eye on our expenses and cut wherever we possibly can. In my view, it does not make sense to cut expenses that serve as a complete barricade to future success, especially on these very large contracts. Doing so would be committing suicide for no reason.

All right, that sounds good. I believe you mentioned either on an earlier call or in a press release something about identifying roughly $3 million in possible expense cuts. Out of that $3 million, how much have you managed to reduce up to now?

I'd say we're at about 70%, roughly, give or take, on that, but there's more coming soon.

That figure is on a yearly basis.

It's a yearly run rate. Yes.