Welcome to Intrusion Inc.'s second quarter 2026 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments. 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 Thinson, 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 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 over to Tony for a few opening remarks.

Well, thank you, Josh, and good afternoon, and thank you all for joining us today. You know, the second quarter was a pivotal period for intrusion. Our revenue increased 64% sequentially, restoring the quarterly revenue run rate that we achieved prior to the ongoing delay associated with the Department of War contract extension, which we've previously discussed on our earnings call for the first quarter. And I'll cover that in more detail in a few moments. Behind that headline, we took the single most significant step in our growth strategy to date, the acquisition of Vigil Agent, and we're already seeing that decision translate into tangible progress. But before I dive into this progress and what it means for our future, I'd first like to provide a brief update on the Department of War matter that I just mentioned. The timing of this contract extension remains subject to the currently unpredictable federal funding and procurement process of the federal government, which has impacted us and many other companies providing services and capabilities to the Department of War. As previously discussed, the situation is compounded by the ongoing geopolitical situation related to the conflict with Iran. And throughout this period, we've continued to support the critical infrastructure technology that we've already deployed, and we remain optimistic that a meaningful portion of the associated revenue will be recognized in future periods, subject to final award timing and funding approvals. And we also continue to see room to expand our solution across additional locations within the Department of War's jurisdiction. So given that the situation in the Middle East continues to remain fluid, we believe the timing of this opportunity has shifted rather than diminished, and we expect activity to resume once the situation begins to normalize. In the meantime, we've entered into contractual agreements with the local agencies that were the beneficiaries of our solution to provide ongoing support and maintenance. These agreements cover our ongoing costs for support, do not include additional expansion or added capabilities. In addition, as you've no doubt read in the news, water and other local utility systems across the continental U.S. have been attacked and compromised by nation-state adversaries, and our solution is specifically and ideally suited to protect these facilities from compromise. We are actively engaging with the appropriate agencies and authorities to raise awareness for our solution and demonstrate how we can help address their needs. Turning to a more recent win that shows that our growth strategy is working, as we discussed on our last earnings call, we were able to secure a $4 million annual contract to deliver our cyber threat intelligence and critical infrastructure protection product to the state of Texas. This contract win was a direct result of our efforts to enhance our federal, state, and local sales efforts and our broader go-to-market strategy. Revenue from this contract started to be recognized during the second quarter and will continue through the remainder of this fiscal year and into fiscal year 2027. Through our initial work with the state of Texas, we've identified additional opportunities for intrusion technology and consulting services that we expect will generate additional revenue beyond the current contract levels. And based on our success in Texas, we are using the framework from this engagement to secure additional contracts across other U.S. states and territories. Our Posse program, delivered through our partnership with PortNexus, also continued to gain some well-received exposure during the quarter. I personally attended one law enforcement trade show here in Texas where we jointly presented the MyFlare alert and intrusion solution, and I personally saw the enthusiasm in the attendees' responses. We jointly presented this solution at many other events over the quarter, and we saw similar levels of enthusiasm. We view this program as an important high-margin channel into the public safety market, and while there wasn't significant revenue in Q2, we expect its contribution to build over the coming quarters. And just yesterday, PortNexus announced its partnership and integration work with a computer-aided dispatch solution that is already installed in hundreds of law enforcement agencies in the Midwest, furthering our opportunities to serve this community and the schools within their jurisdiction. And while it's a complex sales process, I still see strong potential for this solution in the long run. Now, finally, I'd like to address our recent acquisition of VigilAgent. But first, let me provide some context. Cybersecurity is undergoing one of the most significant transformations in its history. AI is dramatically reshaping both offense and defense and poses significant internal risks for most organizations related to the protection of sensitive data, privacy, and trade secrets. Organizations today face increasingly sophisticated AI-driven threats while simultaneously confronting growing complexity, limited cybersecurity talent, and rising demands to protect critical data and operations. As a result, customers are looking beyond standalone security products towards integrated platforms that combine artificial intelligence, leading-edge threat intelligence, managed services, and trusted long-term partners capable of delivering measurable security outcomes. It's our belief that these industry trends are reshaping the cybersecurity market, and they've also shaped the strategic decisions we've made at intrusion. Our objective is not simply to participate in this changing market, but to build a stronger company positioned to compete and create long-term value as the industry evolves. With that objective in mind, we announced the acquisition of VigilAgent, a managed security service provider, to create an AI-native cybersecurity platform. The acquisition of Vigil Agent is a significant step forward for intrusion and a natural evolution of our growth strategy. The addition of Vigil Agent adds significant shareholder value as the business immediately adds approximately $3.5 million of annual recurring revenue that is supported by a diversified base of multi-year customer contracts. tracks. Building recurring revenue has been a strategic priority for Intrusion over the past year, and this acquisition immediately accelerates our strategy and gives us access to an expanded ecosystem of customers and channel partners that we previously did not have access to. The acquisition also brings together complementary technologies, experienced cybersecurity professionals, proprietary threat intelligence, and managed detection and response capabilities. Most importantly, the vigil agent and intrusion technical teams are working together and have created some exciting brand new capabilities to detect, manage, and remediate threats associated with the use of AI by insiders as well as malevolent actors. This is the new battle space, and it is the most important area of focus in the foreseeable future. And we intend to be on the leading edge of that fight. Now, as we noted on our M&A call a few weeks ago, we plan to market and sell the Intrusion Shield platform through Vigil Agents' commercially oriented organization. As a result, you'll see some changes in how we bring Shield and our other technologies to market. Intrusion will continue to serve the U.S. federal government and large institutional partners, including public, federal, state, and local institutions, and provide those customers with its customized and highly tailored technology and consulting services. While Vigil Agent will operate as a dedicated business unit within the Intrusion organization. Vigil Agent's focus will be on the commercial market space. We think this segmentation will accelerate our growth and allow for more effective sales and marketing efforts in these businesses. In fact, we've already begun to see the acquisition yield positive results since being acquired a few short weeks ago. This progress includes securing over $350,000 in annualized new business and customer renewals, signing several new strategic MSP partners, each with the potential to generate more than $1 million in annual recurring revenue as deployments ramp. We've identified more than $3 million in annualized cross-synergies through integration and operational efficiencies. We've expanded our strategic foundation with enhanced AI capabilities, managed security expertise, and a much broader commercial platform. These accomplishments are only the beginning. Our objective is not simply to integrate two organizations. It's to build a platform that can innovate faster, serve customers more effectively, and create durable value over the long term and achieve our goal of transitioning intrusion to profitability in 2027. We're extremely excited about this acquisition, but we recognize that transformations require disciplined execution, accountability, and sustained performance. And these principles will continue to guide every single decision we make. Now, before I turn the call over to Kim, I'd like to remind our shareholders of our upcoming annual meeting on August 27th. This year's meeting matters more than most, as it includes several important matters, including Proposal 3, which asks shareholders to approve the potential issuance of intrusion common stock above NASDAQ's 19.9% threshold, pursuant to the membership interest purchase agreement involving Vigil Agent. I encourage you all to please review the definitive proxy statement, vote every eligible account that you own, and submit your voting instructions as early as possible. The Board of Directors unanimously recommends that shareholders vote for each director nominee and for proposals 2, 3, and 4. We thank you for your support and your participation. And with that, I would now like to turn it over to Kim for a more detailed review of our second quarter financial results. Kim?

Thanks, Tony. Good afternoon, everyone. Second quarter 2026 revenue was $1.5 million, up 64% sequentially and down 22% from the prior year quarter. The year-over-year decline primarily reflects the continued delay in the Department of War contract funding, while the sequential improvement included revenue from the new contract with the state of Texas. We anticipate continued improvement in our revenue performance throughout the remainder of 2026, driven by the sales of our critical infrastructure solution to additional U.S. government agencies and commercial markets, further expansion of our partnership with PortNexus, revenue recognition from a recently awarded contract to provide cyber threat intelligence and critical infrastructure protection to the state of Texas, the addition of recurring revenue from the vigil agent acquisition, increasing commercial subscription revenue as newly signed channel and strategic partners roll out our solution across their end user customer base, and opportunities to extend our cyber threat intelligence and critical infrastructure protection offerings to other states that have established and funded cyber commands. Second quarter gross profit margin was 66% compared to 76% from the prior year period. The decrease was primarily attributable to changes in revenue and product mix. Operating expenses in the second quarter of 2026 totaled $3.4 million, a decrease of $0.8 million sequentially, and an increase of $0.1 million year over year. The decrease when compared to the first quarter relates primarily to the timing of audit fees, increased allocation of cost to cost of sales for work performed under the new state of Texas contract, and increased software development costs. The second quarter increase on a year-over-year basis reflects stepped-up investment in sales and sales support personnel, trade shows, and enhanced brand and product marketing initiatives. Net loss for the second quarter of 2026 was $2.6 million, or $0.13 per share, compared to a net loss of $2 million, or $0.10 per share, for the second quarter of 2025. The increased net loss in the 2026 period was driven by a decline in revenues, primarily due to the delay in incremental funding under the DOW contract. Turning to the balance sheet, from a liquidity perspective on June 30, 2026, we had cash and cash equivalents of $0.2 million. During the quarter, we entered into two separate note purchase agreements with Streeterville, pursuant to which we sold notes payable with an aggregate original principal amount of $3.7 million for cash proceeds of $3.3 million. Definancing was undertaken to support ongoing operations and address short-term liquidity needs, resulting from a delayed payment from a long-term government customer, as well as increased operating losses associated with the delay in funding on the DOW contract. Looking ahead, we plan to continue to pursue additional capital through public or private financings, including the use of our at-the-market ATM program. With that, I'd now like to turn the call back over to Tony for a few closing comments.

Thank you, Kim. The second quarter of 26 will, I think, stand out as an inflection point for intrusion. We entered the year focused on building recurring revenue, broadening our commercial reach, and staying at the front edge of AI-driven cybersecurity. And with VigilAgent now part of the company, we've taken a real step towards all three. We're building a stronger platform that serves customers across both commercial and government markets at a time when the threat landscape is expanding very quickly. The early results give us confidence in the strategic rationale, and our focus going forward will continue to remain on disciplined execution as we transition toward profitability and create value for our shareholders. And I'll close where I began by asking those of you who held shares as of the June 30th record date to vote your proxy ahead of our August 27th annual meeting. Your participation matters to this company's next chapter. I'll now turn the call over to the operator for Q&A.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

Once again, please press star one if you have a question or comment our first question is from edward ru with ascendant capital please proceed yeah congratulations on uh the acquisition my question is you know is the team fully integrated i know you mentioned that you guys are already developing products and you guys are already you know doing making sales pitch um have you feel that the integration is you know, pretty complete?

Well, yeah, let me describe what I mean by integration. So in terms of our commercial customers, what we sold prior to the acquisition was just Shield. Now what we can do and have done in a couple of cases is offer our customers not only Shield, but also the services and capability that Vigil Agent has traditionally offered. And in a few of those cases, that additional capabilities mattered both for a renewal or in some cases for a new contract. So the teams have been working together in that regard, And the combined offering is a pretty compelling offer at this particular point. As I said, though, on the call, we're going to operate Vigil Agent as the commercial front end and go-to-market for our capabilities. So Vigil Agent will include, their offerings will include some aspects of S.H.I.E.L.D. where it's relevant to their market. And for these larger government sort of custom consulting projects that involve things beyond S.H.I.E.L.D. or beyond the capabilities of existing visual agent technology, we'll sell and market that through our traditional intrusion sales force and channels and so on. So you should think of it as sort of commercial and then, on the other hand, the customized, highly tailored, larger contract kinds of modes.

Have you worked with a visual agent before the acquisition?

We hadn't worked directly with them, but we did look around as we were considering the opportunities in the market. And what impressed me was their skill set that they had already built in terms of AI capabilities. They're what I would call an AI native managed service security provider. They're not, you know, a company that, you know, has an old set of stuff that they're trying to add AI onto. They've started with a bias towards artificial intelligence right from the get-go. And that provides a whole bunch of strategic advantages. So we're pretty excited about that. you know sort of positioning if nothing else that sounds good and my last question is on you know future M&A's is should we be expecting you to be possibly announcing future acquisitions well that is part of the strategy we think in the market space that a vigil agent operates in which is the managed service security provider space, there's already signs of massive consolidation going on. And because of their speed and cost advantages and efficacy advantages because of their approach, there's many, many, many opportunities for inorganic growth. But we also expect to grow organically. So it's a combination of the two.

Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you. Thanks, Ed.

The next question is from Howard Brouse with Wellington Shields. Please proceed.

Tony, can you discuss PortNexus and where you stand and what are the opportunities?

Sure. So we're deployed in, let's see, one, two, three, four, five counties in Texas, two in Iowa, and one in Missouri during Q2. And as I mentioned on the call, we've been doing a ton of trade shows in Q2 and early Q3. And as I said on the call, the enthusiasm level of the trade shows is super high. So we had great exposure in Iowa to nearly half the sheriff's departments and school districts in the state. and tons of leads that we're pursuing. So I'm pretty excited about the future for it, but it is a complex process, as I mentioned, because in every location you've got to get agreement between the school district and the sheriff to support the solution, and that usually takes multiple conversations. As I mentioned on the call, one of the accelerants is going to be an arrangement that Portnex has just made with a computer-aided dispatch software company that has hundreds of deployments in the Midwest part of the U.S., And so it'll be a simpler add-on kind of capability with that arrangement versus having to start from scratch. So that, I think, is a very positive development, just announced earlier this week. And I expect there'll be more of that kind of thing where we'll have further integrations that should speed up our deployment and widen the opportunities here. You know, we're both pretty small companies, so covering every school district and every county and every sheriff's department in the country is a monumental task. But with some of these partners, we think we can accelerate faster. So we're pretty excited about that.

Can you give us a sense of the opportunity, say, for 2027 in terms of Port Nexus?

Hard to dimensionalize exactly, Howard, because it all depends on, you know, decisions that these school districts and sheriff's departments make. Um, but, um, I expect that in, in 27, it should start to, uh, contribute meaningful revenue that we can, uh, talk about, uh, that, that'd be how I would dimensionalize it. Right now, it's not that interesting to talk about, uh, for Q2, but, uh, you know, more later this year.

That's all I have. Thank you. Thank you, everybody.

Once again, if you have a question or a comment, please indicate so by pressing star 1 on your touchtone phone. The next question is from Jerry Yanowitz, private investor. Please proceed.

Tony, you mentioned several times combining the offerings, integrating the two firms. In terms of the increase in the ARR, the $6 million, and subsequent increases in your current revenue or cash flow, Given your combination of the companies, how do you plan to differentiate what's due exclusively due to the visual agent and what was due to the traditional intrusion side of the company in terms of qualifying for that?

Yeah, both are recurring revenue subscription-based activities, so it's pretty easy for us to track. The only tricky part will be if we do a combined offering or if we embed, you know, some intrusion technology directly into the vigil agent offering versus a standalone line item, if you will. And we'll just have to have some internal transfer pricing for that kind of sale. But it's not a huge challenge in that regard. well within our capabilities.

You did mention combined offerings in your presentation. That's what I was asking.

No, we expect that we'll have that as well.

All right. And the second question is, the unregistered shares that a visual agent is getting, one of those shares is going to be registered and eligible for sale.

They will be eligible for sale after holding six months. So that's pursuant to Section 144. They need to hold them for six months, and then they can be sold.

And you haven't put any additional requirements on those shares internally? There are no additional requirements on those shares, no. And, Tony, you've talked about in the past being cash flow positive by the fourth quarter. Do you anticipate being cash flow positive every quarter next year?

I would say at this point in 27, I can't tell you exactly the week and the quarter, but we expect to be cash flow positive in 27, and I'm thinking earlier rather than later.

So you're not committing to be cash flow positive in the first or second quarter of next year?

Well, it depends on whether you're talking about run rate or for the full quarter. And that's a much more detailed discussion. So, you know, we're definitely headed in the right direction there.

Am I not correct that previously you said the run rate by the fourth quarter would be cash flow positive?

We're still aiming for that, but it won't be cash flow positive for the fourth quarter, more than likely. So do you want to commit to a quarter when you will be cash flow positive? well i i don't want to commit but you know my my goal is you know q1 so all right thank you at this time there are no other questions in the queue i'll turn the call back over to your host mr tony scott for closing remarks all right well thanks everybody for um your participation as i mentioned during our call earlier, it's very important to vote your shares. This transformation and vote will enable us to carry on the mission to achieve the goals that we've talked about. I'd also like to just mention that the work done by our teams, both on the vigil agent side and on The intrusion side has been stellar over the last week and months, or months, both to get the deal done. And then once the agreement was signed, everybody's leaned in heavily and well, and the teams are working extremely well together. So from that perspective, I couldn't be happier. We recognize we've got a bunch of work to do, and we're working hard at it. But I did want to acknowledge that our teams have just, you know, really stepped up and leaned in and helped us get to where we are. And that gives me great confidence for where we're going. So thanks for everyone's help, and we'll talk to you next quarter.

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