Welcome to Intrusion Inc.'s Business Update 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, operator. Joining me today are Tony Scott, 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 the statements made during this conference call relate 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 filing 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. With that, I'll now turn the call over to Tony.
Thanks, Josh. I wanted to provide a general update on our business through Q3, and also an update on the work that our engineering teams have been doing to improve the efficacy and of our products and the attractiveness of our products in our target markets. But before I start, I just wanna say our thoughts are with all of those in the Florida Panhandle who are affected by the Hurricane Milton. Having had a house down there, I'm quite sympathetic to their plight and also familiar with the area. So our thoughts are with all of those folks in that area. In terms of our business update, in Q3, we added seven new logos for Shield, and we had expansion in two other existing logos.
And also, continuing on from Q2, we had no churn in our Shield customers. So cumulatively, in the fiscal year twenty-four, we've had nineteen new deals for Shield, seventeen new logos. So you can see momentum is picking up, and we expect to see continued increases in new logos for Q4 and continued expansion momentum as well in Q4 with existing customers. Q2 to Q3 saw a roughly 50% revenue increase sequentially for Shield, and we expect when we release our final results, to have a roughly 2% improvement in our gross margin for Q3 as well. Our cost management practices continue and delivered additional savings in Q3, which you'll see again in our results when we announce them.
Our management of working capital will greatly reduce the need for additional capital in Q4, a very positive moment for us. Also, the $2 million DoD contract we recently announced is a combination of Shield consulting and consulting, and contributed to revenue in Q3. This will likely lead to add-on contracts in Q4 and additional contracts in the Q4, Q1 timeframe for similar capabilities in other regions of the world, and we're excited to have that under our belt. In Q3, both Joe and I traveled to the Philippines, and Joe went to Guam as well, I think twice actually, and we met with both government and commercial customers. These trips have resulted in additional high-quality pipeline opportunities, which we expect to close in Q4 and some in Q1.
We're pretty excited about the direction and momentum of the business, as you can probably tell from these results. On the product front, we continue to add features and capabilities that are relevant to our target market, and we also continue to get great customer feedback. As a reminder, our market is managed service providers, managed service security providers, ISPs, mid to large enterprise, and we also are now targeting expanded use of Shield in government agencies, as well as in critical infrastructure. The features that we've added allow us to address the needs of these larger and diverse customers, and I believe will lead to larger deal sizes over time. Specifically, we added some AI features to our Command Hub, and that adds to the value that that whole platform brings to our customers.
Finally, on the product side, we continue to make steady progress in reducing the time required to update and refresh our rule set and our extensive database, which enables even more timely and relevant, up-to-date cybersecurity protection for our customers. Between all of these, we're pretty excited about where we are and our prospects for Q4. With that, let me open it up for questions, and then I'll have some summary comments at the end.
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 one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Once again, please press star one on your phone at this time if you wish to ask a question. One moment please, while we pull for questions, and your first question today is coming from Scott Buck from H.C. Wainwright. Scott, your line is live.
Hi, Tony. Appreciate you hosting this call. First, just for clarification, your comments on revenue in the Q3 , it was Shield revenue is up 50% sequentially, right? Not total revenue.
That's correct.
Shield revenue was roughly $300,000-$400,000 in the Q2 . Does that sound about right?
Three hundred.
It was $300, according to Kim, who's sitting across from me. Yeah.
Perfect. Thank you, Kim. And then the second question, I'm sure this has been discussed before, but maybe you could remind us why all the positive momentum in the South Pacific? I mean, I understand the one Philippine contract tied to the election, but it seems like you have, you know, some pretty strong traction there beyond that.
Yeah, I think all over the region, and it's beyond the Philippines and Guam, there's considerable concern around Chinese cybersecurity issues, particularly things like critical infrastructure. And so, you know, we're just seeing heightened both concern and also those organizations seeking solutions that can help, you know, protect against that specific adversary. And so I think that's one of the drivers. The other driver, I think, is compared to the U.S., there's relatively a lot less advertising and penetration in other cybersecurity solutions there. So the audience there is more receptive to, you know, the kind of solution that we're offering because they're not inundated with, you know, 50 other things that might sound the same or purport to do the same things that we do.
So, and then I think the third factor is these are smaller communities and kind of all the CISOs and CIOs know one another, and, based on some of the early results that we had, word of mouth is spreading that, "Hey, you ought to take a look at this and consider this for your organization." So all of those, I think, are significant contributors to our success there.
Great. That makes a lot of sense. And then last one, since you have Kim right there next to you, the cost-cutting. I'm curious, Kim, the current cost infrastructure that you have in place, how much growth can that support? Can you guys double the size of the business without having to meaningfully add to some of that infrastructure? Or just trying to get a sense of what operating leverage looks like through 2025 and maybe even into 2026.
Yes. Our operating expenses are very scalable. I would say the one variable component in there that will grow as our revenue base grows is perhaps sales commissions. And so to the extent we're, it's not a house account, so to speak, as in U.S. government, commissions on sales will grow and our expenses will grow with that. But otherwise, our infrastructure is very scalable, and we don't see having to invest additional dollars unless we choose to reinvest to increase marketing activities or to accelerate deployment of new product features.
I'll add in saying that hidden in Kim's comment is, all along, we've been keeping our infrastructure more modern, and so we have been investing, and we will continue to invest, but it's not beyond current levels in making sure we don't get behind the power curve or have significant technical debt so all of that gives us the ability to scale up and out without adding a ton of cost at any one point. I think that's one of the things I've always been focused on, is making sure that we don't get you know obsolete in terms of our technology footprint.
Great. Well, I appreciate the color, guys. Thank you for the time.
Thank you.
Thank you. The next question will be from Ed Woo, from Ascendiant Capital. Ed, your line is live.
Yeah, congratulations on the progress. I was just wondering what you see out in the marketplace in terms of the sales cycle. Do you attribute your momentum to your execution or to just a better environment for people, you know, looking for cybersecurity software?
... It's an interesting question. I don't know that I have any gem to share with you there. As I said, I think last quarter, we've seen things all over the map. We've seen some customers act quickly, and we've seen other customers who we thought were gonna act quickly take a relatively long time, and it's been kind of tricky to predict how that's gonna happen. We certainly see a surge of interest every time there's a cybersecurity incident. You know, we get calls from people saying, "I saw this in The New York Times or The Wall Street Journal. Would you guys have been able to prevent that particular attack?" and in most cases, our answer is probably we would have, or we know that we could have.
But from that, you know, moment till the time somebody decides to actually buy our solution can be, you know, all over the map, as I just said. It's just still incredibly hard to predict. What I do hear from my friends, those people that are CIOs and CISOs, is that they're still under the same pressures that they have been all year, which is their bosses, the CEOs and CFOs, are asking them: "Are you sure we're getting good bang for the buck for the money we're spending?" I think we have a good series of things that we can do to help them better answer that question by deploying our technology, because you can pretty quickly see what's working and what's not working. That continues to be, you know, a constant pressure.
and particularly also because AI is now creating demands on the budget in most organizations. It's also putting some pressure on the overall spend budget for most CIOs, and I don't think that's gonna change in the near future.
All right, then my last question is just on your overall pipeline. Would you say that it's bigger, about the same as it was maybe at the beginning of the year?
Oh, it's growing every quarter. We expect to have increases in that qualified pipeline every quarter going forward.
Great. Well, thank you for answering my questions, and I wish you guys good luck. Thank you.
Thank you, Ed.
Thank you. The next question will be from Russell Cleveland, from RENN Capital. Russell, your line is live.
Okay. You know, the big question here on everybody's mind is the marketing, and it just seems like it took so long to get off the ground. Makes no sense, that we have a good product, we have experienced people, and it's just, that's why our stock is so down, because the marketing doesn't seem to be working, so can you talk about the marketing here and why it's taken so long to get off the ground?
To be completely fair, we have not spent a ton of money on marketing historically, and the degree that we spend money on marketing is in the digital realm, not doing trade shows, you know, expensive dinners, you know, those kinds of things. I do believe that part of the challenge we've had in the digital space is differentiating what we do from traditional firewalls. I think we made some good traction on that in Q3, and we've gotten some great feedback from existing customers and-
Okay, that's the only question I had.
Yep.
I think that's at the essence of, you know, why our stock is where it is, because of the failure of marketing. And, as I said, it's been a puzzle because, you know, like, your credentials are certainly good. We have very good people. We seem to have good technology, and, you know, maybe we need a new head of marketing or something here. But, this is what, you know, really is a big elephant in the room, is why isn't the marketing been more successful? But I, I appreciate your answer. Thank you so much.
Yeah. I think and I do think we will step up our marketing. We've got some great plans, you know, that we're executing on in Q4. Q4 and Q1 are really the sort of buying season in some sense. It's when people are putting their budgets together and all of that. So you will see us step up from traditional levels in that area. But thanks for the question.
Thank you so much. Bye-bye.
Thank you. The next question will be from Scott Buck from H.C. Wainwright. Scott, your line is live.
Hey, sorry, guys, one more. You filed the shelf in mid-August and entered into the ATM program. I was hoping you might be able to give us a bit of an update on the balance sheet today and what that looks like on a go-forward basis.
Let me give it to Kim for that.
Hi, Scott. We filed the shelf in mid-August. The shelf that we had previously was expiring, and so, you know, that gives us flexibility in allowing us to utilize, as needed, the remaining capacity on the ATM, and that really was the sole reason for doing that. But, you know, going forward, you know, we plan to limit the utilization of the ATM as much as possible and manage our working capital to minimize dilution to existing shareholders.
Great. I appreciate that, guys. That's it. Thank you.
Thank you, and once again, if you wish to ask a question on today's call, it's star one. Please press star one if you wish to ask a question today. The next question is coming from Walter Schenker from MAZ Partners. Walter, your line is live.
Hi, Kim and Tony. Can you just obviously, we're all aware of the time frame on our election, but since you have a major contract on the Philippine election, can you just tell us or give us a better update on how the revenues for that contract will ramp?
Well, so we throughout the fall here, we've been in the testing phase. Our technology's been delivered, and the election's in the early spring kind of time frame. We still don't have final resolution on what the Commission on Elections plans to do after the election. We know that there's some period of time after that they expect the systems to be operational and so on. They are working on some ideas for continued use of the technology beyond that period of time, but it's not been finalized yet. So I think it's a bit early for us to characterize you know what will happen immediately after the elections.
They do have regular election cycles there, and the prior incumbent was in place for, I think, almost ten years before this current cycle started. So, we expect there to be long-term revenue. We just don't know exact proportions at this point in time, where our focus is on making sure it works and works extremely well right now.
But again, to just follow up, if the election's in the spring, early spring, does that mean you will be reporting revenues sort of on a straight line or consistently from now until then, really in the Q1 , only in the month around the election? I'm just again, I'm just trying to understand, are you getting paid on a monthly basis, weekly basis, once you install the equipment, or largely around the election itself?
I only know about our revenue at this point through the election period and shortly after. I don't know specifically what it's going to look like after that. So between now and, you know, the end of Q1, we know exactly what it is, but beyond that, I think it's speculative for me to-
No, no
Make any comment.
I got it. Sorry, Tony.
Yeah.
I got that.
Yeah.
Therefore, in the Q4 and Q1 , it will contribute six figures to income each quarter or more?
No, it won't, it won't be six figures each quarter.
Okay. Okay, and just one other question. You keep referring to logos. Just in sort of a back-of-the-envelope question, a logo can range from a few thousand dollars to tens of thousands of dollars? Just trying to get-
Or, yeah-
a sense of what the people you're signing up for.
Yeah, or they range all over the place. Well, there's some are tens of thousands of dollars, some are hundreds of thousands of dollars, so.
Okay. So five to ten logos is material?
Yes, and I think it's really, you know, there's two things I think about when we think about logos. One is, you know, just new customers, people that we hadn't previously been engaged with before. I also think about new industries that we're in, because my experience has been that, you know, people in an industry talk to others in that same industry, and these are door openers for us in some cases. They tend to be thought leaders in the spaces that they participate in, and that's always a good sign. And that, coupled with no churn, are the leading indicators to me that we're, you know, on a positive track. If we were not generating new logos and if we were having churn, then I would be far more concerned. Let me put it that way.
Okay, good. Okay. Thank you, Tony.
... Thank you. And we did have another question coming from Anthony Medina. Anthony is a private investor. Anthony, your line is live.
Hey, Tony, hey, Kim, appreciate your time today. I just got a real quick question. Is it fair to say you see a path to, you know, break even or profitability in the financials in the next few quarters?
We do in 2025 see a path to break even. I think as Kim always reminds me, you know, that path is dependent on, you know, making sure that if we have, you know, for example, significant growth and we need to fund that growth, that might elongate the path to profitability on the one hand, could accelerate it on the other hand, depending on the nature of that. So, unless we get into the specifics, you know, it's a little bit hard to forecast. But I will tell you, it certainly is our objective, the sooner we get there, the happier I will be, and I'm sure the happier our investors will be, and we've set, you know, targets for ourselves, and we're working hard to get to those.
Thank you so much.
Thank you. There were no other questions from the lines at this time. I would now like to hand the call over to Tony Scott for closing remarks.
All right. Well, thanks, everyone. I appreciate all the questions. In summary, I wanted to say I'm pleased but not satisfied with our results. I do believe that we have the right initiatives in place for us to make continued progress towards our goals of profitability and growth and increased shareholder value. We're working hard to fulfill those goals. Our team is energized, we're capable, and we're dedicated to that mission. And I wanted to thank all of our shareholders for your faith in us. I look forward to our earnings call next month and continuing to share our progress in much greater detail. So thanks, everyone, and appreciate your participating today.
Thank you. This does conclude today's conference, and you may now disconnect your lines at this time. Thank you for your participation.