Intrusion Inc (INTZ) Q3 2026 Earnings Call Transcript

Welcome to Intrusions Incorporated Third 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 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 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 four 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 those projections described in today's conference call. Any poor-looking statements that we make on this call are based upon the 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 a performance or business trend. With that, let me now turn the call over to Tony for a few opening remarks.

Thank you, Josh, and good afternoon, and thank you all for joining us today. The third quarter represented another important period for intrusion as we continued to make good progress towards stabilizing our business, integrating our recent vigil agent acquisition, and advancing our overall growth strategy. During the quarter, our revenue increased by 84% sequentially and 36% year over year. This was driven by our contract with the state of Texas and the first full quarter of revenue contribution from Vigil Agent. Overall, we remain encouraged by the opportunities that lie ahead, and we believe our expanding pipeline of business opportunities positions us well to support future growth. Now, as I noted in our second quarter call, we continue to see additional opportunities in the state of Texas to expand the use of our technology and our consulting services, such that we expect to generate additional meaningful revenue over the next few quarters. We also remain engaged with other state and local agencies as we look to leverage the experience we have developed in Texas to secure additional contracts. Recently, I've made several trips to Washington, D.C. to meet with representatives from multiple government agencies who all expressed interest in implementing our cybersecurity projects, such as our critical infrastructure solution at key facilities to help defend against the growing cyber threat from nation-state adversaries. We are all encouraged by the level of engagement and interest that we are seeing from these government organizations, and we believe that a growing focus on protecting critical infrastructure from cyber attacks represents a meaningful revenue growth opportunity for intrusion, as our solution is purpose-built to help defend these critical facilities against evolving cybersecurity threats. Now, before I move on to some of our other additional business updates, I would first like to spend a little time discussing the recent midterm elections and what that means for intrusion, as we know that is top of mind for many investors, given our exposure to working with the government. And while some uncertainty remains around the future of federal and state government budgets, it's important to note that cybersecurity has historically maintained broad bipartisan support, and we believe that the need to protect government networks, critical infrastructure, and sensitive information will continue to remain a priority regardless of the balance of power at the federal, state, or local level. We are proud of the work that we do with the government at all levels, 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 port nexus and the MyFlare Alert solution that uses intrusion technology. This is a public safety solution that provides nearly instantaneous visibility to law enforcement and school safety personnel in the event of an incident in a school. In Texas, the solution is now deployed in nine dispatch centers and four schools. In Iowa, two dispatch centers and three schools are live, while four dispatch centers are operational in Missouri. In Arkansas, multiple deployments are planned through the end of the quarter. And additionally, Ohio recently launched a statewide grant program to fund school safety measures, including solutions like MyFlare Alert, and the PortNexus team is actively pursuing the massive opportunities in that state. PortNexus also plans to expand its solutions in 2027 to bring similar alert capabilities to entertainment venues where rapid notifications and real-time situational awareness are critical to saving lives, as demonstrated by some incidents across the country that we've seen recently. We look forward to continuing to work with PortNexus as these solutions come to market. Transitioning now to Vigilagent, as I noted at the beginning of the call, the third quarter represented the first full period of revenue contributions from Vigilagent, generating point eight million in revenue. And as we discussed last quarter, we view Vigilagent as an important part of our strategy to build a broader AI-driven cybersecurity platform and expand our recurring revenue. By combining intrusion's proprietary threat intelligence and cybersecurity technology with vigil agents' managed security service capabilities, we believe we are better positioned to deliver a comprehensive cybersecurity platform that addresses the evolving needs of our customers across both commercial and government markets. Our focus remains on expanding our commercial reach. Deepening relationships with existing customers and partners, and identifying opportunities to leverage the complementary capabilities of intrusion and vigil agent to drive additional growth. I'm also pleased to announce that, effective today, Stephanie Lindecky is assuming the leadership responsibility for our commercial sales activities, including the vigil agent business. Stephanie brings a wealth of sales and leadership experience across commercial sales, channel development, strategy, business execution, and partner development. We are excited to have Stephanie in this role and look forward to the impact she will make in helping advance our growth goals. In addition to these growth initiatives, we've also continued to take deliberate steps to help improve our cost structure and our operating efficiency by implementing some expense-related reduction measures, including management and our board of directors voluntarily accepting reductions in cash compensation in exchange for equity as a part of a broader effort to conserve cash. Kim will provide greater details on these cost savings initiatives shortly. And finally, as some of you may have seen last week, we recently announced that NASDAQ had granted intrusion a second one hundred eighty day extension to regain compliance with the one dollar bid price requirement. Ultimately, we believe that growing revenue by converting opportunities in our pipeline and improving our cost structure are the most important factors in strengthening our business performance and regaining compliance with the minimum bid price. We remain focused on disciplined execution and creating long-term, sustainable financial growth. With that, I would now like to turn the call over to Kim for a more detailed review of our third quarter financials. Kim?

Thanks, Tony. Third quarter 2026 revenue was $2.7 million, up 84% sequentially and 36% from the prior year quarter. Visual agent contributed $0.8 million, or 28% of consolidated revenue, during its first full quarter as part of intrusion. Revenue from preacquisition intrusion was $1.9 million, a decrease of $48,000, or 2% from the prior year quarter. The addition of Visual Agent has broadened our commercial customer base. U.S. government customers represented 67% of third quarter revenue compared with 97% in the prior year quarter. For the first nine months of 2026, consolidated revenue was $5 million, down 11% from $5.6 million in the prior year period. Revenue from the $3.9 million Texas state agency contract awarded in May has fully offset the loss of Department of War revenue. To date, the Texas engagement has generated consulting revenue and may also create opportunities for SHIELD deployments, although additional awards are not guaranteed. We continue to expect our revenue performance to improve over time, supported by several ongoing growth drivers. These include expanding sales of our critical infrastructure solutions to additional U.S. government agencies and commercial customers. Further developing our key partnerships, continued revenue contributions from our state of Texas contracts, growth and recurring revenue from vigil agents, And increasing commercial subscription revenue as newly signed channel and strategic partners expand the reach of our solutions across their end-user customer bases. Third quarter gross profit margin was 55% compared to 66% in the second quarter of 2026 and 77% in the prior year period. The lower margin reflects our revenue mix, including Vigil Agents' managed cybersecurity services and lower margin consulting work under the new state agency contract. Vigil Agent contributed approximately $0.2 million of gross profit at a 23% margin. Shield revenue represented 5% of consolidated revenue compared with 25% a year ago. Operating expenses in the third quarter of 2026 totaled $4.3 million, compared with $3.6 million in the prior year quarter. Vigil agent contributed $0.8 million of operating expenses. Excluding vigil agent, pre-acquisition intrusion operating expenses were $3.4 million, a decrease of $0.2 million, or 5% from the prior year quarter. These expenses included unplanned professional services and severance associated with staffing reductions that are one time in nature. Recently, we've taken steps to reduce our expenses, including the elimination of five FTEs, voluntary reductions in cash compensation for members of senior management and the board in exchange for equity, eliminating the use of certain contractors, and cutting discretionary sales and marketing expenses that were not generating the expected returns. We are continuing to evaluate additional opportunities that will help us improve our cost structure while ensuring we maintain the resources necessary to pursue our longer-term growth opportunities. On a sequential basis, pre-acquisition intrusion operating expenses were approximately $3.4 million in both the second and third quarters. Share-based compensation increased from approximately $0.1 million to $0.5 million, including awards associated with merit increases and voluntary reductions in cash compensation by management and directors. Excluding share-based compensation in both quarters, pre-acquisition operating expenses decreased from approximately $3.4 million to $3 million, a reduction of approximately $0.4 million, or 12%. This comparison helps show the progress we are making in reducing expenses while retaining resources to support growth. Net loss attributable to intrusion for the third quarter of 2026 was $2.9 million, or $0.12 per share, compared with a net loss of $2.1 million, or $0.10 per share for the third quarter of 2025. The increase reflected higher consolidated operating expenses and financing costs. Interest expense was $397,000 compared with $17,000 a year ago. Turning to the balance sheet from a liquidity perspective, on September 30, 2026, we had cash and cash equivalents of $0.4 million. With that, I'd now like to turn the call back over to Tony for a few closing comments. Tony?

Thank you, Kim. We've made great progress in recovering from several unplanned setbacks that occurred late last year and earlier this year that we've discussed on prior calls, and our results during the third quarter reflect the efforts we've made to stabilize our business, integrate Vigil Agent, and advance our growth strategy. As we look ahead, we're encouraged by the trends that we are seeing. Interest in protecting critical infrastructure is growing dramatically. Our pipeline of quality opportunities is expanding, and the combination of our threat intelligence with vigil agents' managed security capabilities is building a stronger platform that delivers AI-driven cybersecurity that addresses the evolving threat landscape our customers face across both commercial, in government markets. We believe that this progress is helping build a stronger foundation for sustainable growth, and we remain committed to disciplined execution as we work toward achieving profitability and creating long-term value for our shareholders. Finally, I would like to thank our employees for their hard work and our shareholders and partners for their continued support. And with that, I'll now turn the call over to the operator for Q&A.

Thank you very much. We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. And for any participants using speaker equipment, it may be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Thank you. Our first question is coming from Ed Wu of Ascendient Capital. Ed, your line is live.

Yeah, congratulations on the progress. My question is, is the integration of Vigil Agent complete, and also, what is your outlook for future acquisitions? Is that still a core part of your strategy?

Thanks, Ed, for the question. No, it's not complete. I would say we're early on in that journey, but even since the quarter has ended, we've had some wins that I think point to the potential for success. Uh, uh, with, with more integration coming. So I'm pretty excited about where it's going to go, but we have a lot more work to do over the next, um, you know, four to six months, uh, to complete, um, all of our plans in that regard. Um, in terms of acquisition, um, you know, we're always looking for the right things. I don't have anything, you know, on the docket or on the menu at this particular point, but if the right opportunity comes along and we can... Have the right capital support to do it. We'll certainly be interested in pursuing that.

Just a quick follow-up. Would you want to wait until Vigil Agent is fully integrated in four to six months, or will it really depend on whatever the opportunity is you see? Yeah, I think it's more opportunity-dependent, not

so much making sure the integration is complete. And, you know, even once our initial plans are done, we'll also then, you know, have a roadmap of things that we want to do. So in some ways, it's work that will be never-ending, not coming to a stop at some point.

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

Thank you very much. Our next question is coming from Simon Wahlberg of Uptick Capital. Simon, your line is live.

Thank you very much. Two quick questions. One, can I get some color on the employment contract for the CEO of the company? And number two, is there any comment on the 8K that was filed today? Thank you.

We have no comment on either.

Okay, thank you very much. Just a reminder there, if there are any remaining questions, you can join the queue by pressing star 1. And our next question is coming from Stephen Bransbetter of ABL Investments. Stephen, your line is live.

Thank you. Congratulations, Tony, on the increase in revenue. It looks like you're moving in the right direction. You mentioned on a previous call, VisualAgent's Oracle AI engine combined with TraceCop delivers capabilities neither could offer independently. Are you seeing any opportunities there to grow the revenues through that combination?

For sure. You know, the reason I think that that makes sense is... You know, we know already extremely well what intrusions capabilities are. We've struggled to sell it standalone historically, but now when you have a platform like VigilAgent and you can add this unique capability that we have to it, it gives you a much more effective. What I loved about VigilAgent was the speed and the accuracy and the cost savings and all of that that come with running a Gentic AI security operations center. But, you know, as I said earlier, we've got more work to do on the integration, and we need to fully develop the roadmap going forward. So I think there's actually great promise there. We've had a win, as I mentioned, this quarter selling intrusion shield technology through the vigil agent team. So, I think that's a... The forecast of things to come.

Wonderful. Sounds fantastic. Truly appreciate your response. Just, I guess, the biggest thing for investors, a break-even each quarter keeps us from fearing bankruptcy, essentially. Each time going back to the well to borrow a little bit more money puts us a little further in dilution, puts us a little fearful of the creditors saying, hey, that's enough. What can we do to eliminate payroll to the extent where it matches revenue so that each quarter we're at least at break-even and anything new that comes in is accretive?

Well, you know, obviously, at some point, you've got to have revenue exceed costs. You know, we've been operating pretty bare bones up to now. The solutions that we have are pretty complex, and they require a lot of engineering time and work to even just be viable. So our best hope is increasing revenue in that regard. Every day, Kim and I are looking at expenses and looking at things that we can do to be more efficient. We've created out some higher-cost things for some lower-cost things pretty continuously, and we'll keep doing that. But the promise, and I think that the thing that we're working the hardest on every single day is improving revenue. And I mentioned in the call that. You know, I've visited D.C. a couple of times in the last few weeks. I'm going back again next week. Those conversations are encouraging. And what's nice about those potential contracts is they come in, you know, $1 million, $2 million, $3 million chunks when they come. And so landing those is pretty important right now when we're trying to generate more revenue. So that's where our focus is. And in the meantime, we'll watch our expenses and cut where we possibly can. It doesn't make sense, in my view, to cut expenses that... You know, act as a complete barricade to future success, particularly on these very large contracts that's committing suicide unnecessarily.

Okay, that sounds good. You mentioned, I guess, either on a previous call or was in a press release about locating about $3 million in potential expense reductions. Of that $3 million, how much have you been able to reduce so far?

I think we're about 70%, roughly, give or take, on that, but more coming shortly. There's an annual run rate, yeah.

Okay, so that would reduce the annual expenses, so about $750 per quarter.

Yeah, somewhere in that range, yeah.

Yeah. Okay, and on the vigil agent side, have you had them look at any potential acquisitions that could rapidly increase revenues for the company?

Not right yet. We've been mostly focused on integration and getting employees onto payroll and benefits. And reducing the overlap that we had in accounting and other activities like that. So, and, you know, starting some of the engineering work. So, a lot more to come in that regard.

Very good. And on the conversion to preferred shares that you announced recently, what does that leave as net debt for the company, notes payable?

I'll turn to Kim on that if she's got the number in her head.

I think it leaves roughly a million dollars as of the data conversion, so a million dollars is what we were left with.

Very good. And then one last question. The NASDAQ listing, we were fortunate. You guys did a great job kicking the can down the road for six months. Do you have a strategy? Is it a reverse split? What are you looking at between now and May of, you know, 2027, where we can make sure we are – continue to be listed on the NASDAQ?

We will do what is necessary to stay listed. If at some point that means a reverse, obviously we'll have to do it, but our goal is to not have to do that unless it's absolutely necessary. Growing sales is our primary focus, period. And with growing sales, we think the market will respond and get us to where we need to go.

Okay. And in the first five weeks of Q4, have you seen anything that, you know, any kind of increased sales or something that we can point to where, you know, going into next year, we have a good head start?

We will, yes, is the answer, and we'll announce those at the appropriate time. So, thank you.

Thank you. Have a great day. Bye.

Thank you very much. And we have another question in. Our next question is coming from Andrew Berger of Berger Capital Management. Andrew, your line is live.

Hey, Tony. Just kind of curious about the pipeline. I mean, you gave a lot of good information about what areas of business you're trying to grow. Is there any quantifiable information you can provide to give investors an understanding of what kind of pipeline you're attacking?

I don't want to give that guidance right now because it's, frankly, you know, a lot of Conversations yet to come. I'll tell you that I'm encouraged by the response that I've heard in Washington and also in Texas here in particular. I'm also encouraged by what I hear from our Fort Nexus partners, and it's probably, in my view, as good as it's ever been. These, you know, as we've all experienced, have to translate into actual contracts, and that's going to be our focus for now and for, you know, the foreseeable future. So, you know, and I'll point out that, you know, we're at a 10.7 million annual run rate right now. If you look at... Q3 revenue. That's an all-time high since I've been here at Intrusion, and we want to grow smartly from there, and I think we have, you know, the pipeline to make that happen. So, you know, that's about all I want to say at this point on that.

Maybe another way to think about it, like, as you look at and have these conversations, like, especially with government, you know, potential customers, do you see the sales cycle kind of opening up a little bit because of, you know, some of these recent attacks on critical infrastructure? Do you see, you know, kind of opening up their budgets and having funds available to support programs that intrusion could potentially work on?

Well, I do, and I think one of the things that's remarkable about the recent conversations that we have is the federal government in its entirety is trying to be faster and more agile in terms of its acquisition processes. So you've seen many examples of this, I think, already. And where the sort of old process that took forever and, you know, had far more obstacles to it, you know, are starting to go away. I wouldn't say they're completely gone, but, you know, they're much better than they once were. On one of my recent visits to D.C., I was able to visit some of my former colleagues. In OMB, and one of the things that they emphasized to me was this deliberate approach that they have to try to be more agile, more effective, and bring innovative solutions in much faster. And so I think we'll benefit from that. And certainly, Valencia, who's our salesperson in D.C., is well-experienced in the ways of D.C. contracting and so on. But, you know, we're going to pursue every single... Avenue and opportunity that we can get our hands on to make sure that the right people know about our capabilities and can quickly take advantage of it. And I'm encouraged by the signals we're getting from all the folks that we've been meeting with.

I appreciate it. Thanks, Tony.

Thank you very much. At this time, there are no other questions in the queue. I'll now turn the call back over to our host, Mr. Tony Scott, for closing remarks.

All right. Well, thanks, everybody. Obviously, critical time for intrusion here. We recognize the hard work that we have to do. The team is... We're focused on it. We're resolute. We know that time is of the essence with respect to what we have to do, and I think we're all engaged, looking forward to it, and expecting to work hard to achieve the goals that we've set out for ourselves here. I do appreciate all of the hard work that's gotten us to this point, and now it's time for, you know, those results to show up that we're all expecting and needing. So thanks, everybody, and again, I appreciate the patience with our investors as well. I know it's been a long, hard road. I'm one of you in that regard, and I'm focused on making sure that it works out for all of you and for me as well. So thanks, everyone.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful afternoon. We thank you for your participation.