Good day, everyone, and welcome to the Intrusion Second Quarter 2025 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Josh Carroll, Investor Relations. Sir, 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 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. Tony?

Thank you, Josh, and good afternoon, and thank you all for joining us today. The second quarter of 2025 marked another positive step forward for Intrusion as we continue to make progress toward our goal of achieving sustainable growth and profitability. A few key highlights in the second quarter were yet another quarter of consistent revenue growth with Q2 marking the fifth quarter in a row of delivering sequential top line growth, near 0 customer churn, which we view as a testament to the value of our offerings, the operational deployment of our Shield critical infrastructure monitoring and protection capability, which expands the breadth and use of our core technology. We completed development work for our release of Intrusion Shield technology into the AWS marketplace. We've seen encouraging results from our Q2 efforts on social media and other platforms of awareness and engagement. And enthusiastic reception for our technology with our solution partner, PortNexus, with respect to MyFlare Alert, the next-generation solution for improving response to safety incidents in schools and other vulnerable public institutions. Now as we discussed during our first quarter call, critical infrastructure was one of the key areas in which we are making strategic investments to strengthen our portfolio of product capabilities and ensure that our solutions are evolving and addressing the fast- moving cybersecurity landscape. Our progress in growing this portion of our portfolio was recently highlighted by the $3.0 million extension and expansion of our contract with the Department of Defense, and that's already generating incremental revenue for us. We continue to see critical infrastructure protection of operational technology environments as a highly promising market opportunity for Intrusion. As Homeland Secretary, Kristi Noem recently highlighted in her May 14, 2025 testimony before the House Homeland Security Committee, critical infrastructure sectors like water, energy, transportation…

Thanks, Tony, and good afternoon, everyone. In the second quarter of 2025, revenues were $1.9 million, an increase of 6% sequentially and 28% when compared to the prior year period. The increase in revenue was driven by multiple new contracts and Shield logos in recent quarters, most notably including a contract with the United States Department of Defense utilizing both Shield technology and consulting services. Consulting revenues in the second quarter totaled $1.4 million, which is flat when compared to the prior quarter and an increase of $0.2 million on a year-over-year basis. Shield revenues in the second quarter were $0.5 million, an increase of $0.1 million sequentially and up $0.2 million when compared to the prior year period. The increase in Shield revenue primarily reflects the work performed under the previously noted Department of Defense contract award. As Tony noted, we are continuing to see strong demand for our services with both governmental and commercial customers and anticipate deeper penetration in both sectors, which will result in further changes to our customer mix. Gross profit margin was 76% for the second quarter of 2025, which was flat on a year-over-year basis. As a reminder, gross profit margin will vary depending on our product mix. Operating expenses in the second quarter of 2025 totaled $3.5 million, an increase of $0.1 million on a sequential basis and $0.4 million on a year-over-year basis. The increase sequentially was largely driven by an increase in R&D spending largely related to design work for expanding our critical infrastructure monitoring product offering. We may elect to further increase our investment in both product development and sales and marketing to accelerate the growth of our customer base, which will result in higher operating expenses. The increase over the prior year period of $0.4 million is primarily due to a higher share-based compensation from equity grants made in the first quarter, timing of merit increases and minor changes to staffing. With that said, we will continue to remain vigilant with our spending to ensure we maintain a strong liquidity position. Net loss for the second quarter of 2025 was $2 million or $0.10 per share compared to a net loss of $2.1 million for the second quarter of 2024. Turning to the balance sheet. From a liquidity perspective, on June 30, 2025, we had cash and cash equivalents of $4.7 million and short-term investments in U.S. treasuries of $3.7 million. We continue to have sufficient capital to fund our operations through the remainder of calendar 2025 and into early 2026. With that, I'd like to turn the call back over to Tony for a few closing comments. Tony?

Thanks, Kim. While we're excited about the progress we've made in growing our business, we recognize that there's still a lot of work to be done in order to achieve our goal of generating sustainable growth and profitability. We do believe that we are on the right path forward and that the strategic investments we've made, combined with the improved conversations we've been having with both current and potential customers, both in government and in the private sector, give us confidence that we'll be able to drive consistent improvement in our financial results. This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Your first question is coming from Scott Buck from H.C. Wainwright.

Tony, I just want to be clear, the $3 million contract with the DoD, is that an expansion of services or just an extension of services you were already providing?

Yes. Great question. It's both really. It's a kind of a renewal of an existing contract, but it's a dollar value increase on top of what we had been running. So it's kind of both. It's an increase in scope, but a continuation contract. And we do expect more of that as this year and next year roll out.

Okay. I guess that's my follow-up, right, is -- what is the broader opportunity within the DoD? And how does the signing of the Big Beautiful Bill serve as a catalyst or a tailwind in your efforts there?

Well, I'm pretty excited about it. I mean the DoD work we're doing covers some of the places that DoD is responsible for. But as I mentioned in my remarks, Kristi Noem specifically called out domestic opportunities for water and utilities and communications and so on. And the exact same solutions that we've created for DoD, which are being deployed largely outside the Continental U.S., those solutions are as applicable internally inside the Continental U.S. So we're going to pursue that with vigor. And I think the opportunity domestically is perhaps even larger than the international opportunity. So we're excited about it. We don't have anything landed yet, but it's clearly a focus of this administration. So we're going to be there, and we're going to play hard to win.

Great. That's helpful. And then I'm curious in terms of the marketplaces, what can you guys do in terms of sales and marketing to get eyeballs on Intrusion Shield within these marketplaces?

Well, we've studied very closely the things that have been successful in those marketplaces and the practices that they've followed in terms of creating awareness and promoting and creating examples of where their specific technologies are appropriate. And so we have a playbook that we're going to follow those best practices. And where we see failures, it's in companies that didn't follow some of these best practices or failed to execute on some of the things that are known to work. So we're fully committed, and we're going to spend some money, but we expect to have commensurate results.

Perfect. And then last one, just in terms of some of your reseller partners, kind of where do you stand with them? You kind of mentioned it or touched on it during the prepared remarks, but just a little additional color there would be very helpful.

Well, I think I've said this in prior calls, but we're continuing to refine our reseller space. We've had some resellers that frankly, didn't do much for us, and we've dropped them, and we've added some new ones. I think we're getting better at understanding which of those are likely to be more successful than, say, others. And we're doing a better job of qualifying those partners. And in turn, they do a better job of qualifying potential customers. That said, we're still focused primarily on MSPs and MSSPs, and we've been doing a number of trade shows and places where we can meet those specific kinds of customers with really good reception. So we're going to continue that this fall and hopefully see some great results from that. But we're constantly refining and learning as we go.

Your next question is coming from Ed Woo from Ascendiant Capital.

Yes. Congratulations on the progress. There seems to be a lot of emphasis on federal opportunities. What about enterprise opportunities? And have you seen any big shift in either budgets or in sales cycles?

Well, the government opportunities are kind of obvious, I guess, because of the sort of focus and emphasis. And it's also a marketplace that, frankly, we've been in business with for quite a long time in Intrusion's history. So it's appropriate for us to mine that. I think the shift that we're seeing there is we're using a lot of our Shield based technology. And we also have a healthy consulting business there. In the corporate and enterprise sector, we're a new entrant in that, and we're continuing to pursue some opportunities in that space. But we think our best entry in the market at this point is through managed service providers and managed service security providers. And so that's where we're putting a lot of interest and effort, I should say. But we're not going to turn away enterprise business, but it's not our core focus at the moment.

Have you noticed any significant shift either federal or enterprise in terms of the budgeting or in terms of sales cycles, whether anybody want to delay purchasing big software contracts?

Well, I think there's still long cycles from everything I can see, talking to my friends and former colleagues and so on. They are under a lot of pressure to validate and justify cybersecurity spend and they're, in many cases, looking at where am I getting value, particularly in spaces where they're vulnerable. So phishing continues to be the #1 entry point for all kinds of bad things to get into your environment. And supply chain is also a huge focus. We're also seeing quite a bit of interest in sort of OT technology protection as opposed to IT protection. The IT protection space is pretty well, got a lot of people playing in it and a lot of saturation. But the OT environment, I'm talking about manufacturing floors and other things like that seems to be a space that's not quite as crowded and a place that we can, I think, play well. So we're going to undertake some additional efforts in that OT space.

Your next question is coming from Howard Brous from Wellington Shields.

Tony, 5 quarters in a row of sequential growth. I'll take nickels, dimes, quarters, or dollars. So first, congratulations on that. Secondly, critical infrastructure. When you talk about schools, could you give us some timing and visibility of what you're talking about in terms of, say, revenue and win?

Yes. So the schools with the PortNexus thing, we did some trade shows with them over the summer. Schools tend to go to their trade shows over the summer and then actually purchased during the fall and winter months as they get into their budget years and school years and so on. One of the things that kind of impressed me when we were showing administrators of school districts, our solutions at some of these trade shows was how quick the sales cycle was. We would do a 10- or 15- or 20-minute demo and the reaction we'd get is, boy, I want this, which in our traditional products, as you know, sometimes is months or longer in terms of getting to a point where they're that enthusiastic about buying. So I'm encouraged by those kinds of receptions. On the other critical infrastructure stuff like protecting communications and water wells and utilities and those kinds of things, I think that's going to be a longer sales cycle because these are typically larger institutions. And in some cases, they have dedicated cybersecurity teams who are going to want to test and vet the solutions and so on. But as we look at the landscape, we don't see as much competition or at least perceived competition in those spaces. So I think we've got room to spread our wings and impress people in those marketplaces.

Can you give us a sense of -- given the opportunities very near term of when you think you might breakeven?

Well, we could have a couple of big contracts, and that would get us there quickly. And if it's a bazillion small ones, it's probably not as quick. But I'm not going to give a date projection, but it's absolutely our goal. And Kim and I think about this every single day about when and how we can get there. So our BDIs are on the target, and we're aiming for that as soon as we can reasonably get there. We're not going to go buy business, only to have it go away, but we want sustainable, profitable long-term business, and that's what we're going for.

[Operator Instructions] Your next question is coming from [indiscernible].

[indiscernible] financial adviser. I did notice that you, took over as CEO in 2021 and a substantial improvement in the net loss in the company. So I applaud you on that. One of the things I wanted to ask you is when do you anticipate having sustainable improvement in your cash flow?

Well, again, it's kind of related to Howard's question. We have a number in mind, which is not that far away that we think would get us to cash flow breakeven or positive EBITDA. And as I said earlier, I think a couple of good contracts get us there or a bunch of smaller ones, obviously. But I think given all of the initiatives that we've launched this year between this infrastructure and OT product, the marketplace with AWS, later on with Azure and our endpoint product and other developments that we have underway, there's multiple avenues for us to get there. So I'm more encouraged than ever that it's achievable. And I'm looking at nearer term rather than long-term. So, however, you want to define those things, but it's certainly our goal. And as a major investor in the company, it's important to me that we get there. So I'll be as excited as anyone when we do.

Who are some of your major competitors?

Well, it's a great question. We -- there's -- what I'd call perceived competitors and then real competitors. And one of the things that we've struggled with is if you look at the offerings of a lot of cybersecurity companies, at a high level, it sounds like they do some of the same things that we do. But when you get down to the details and understand what they actually do, there aren't really any competitors. So as an example, people often think that we do the same thing as, for example, Cisco Umbrella, which is a product name that Cisco has. But when we do a side-by-side comparison, we find that there's very little overlap, and we're very unique in our space. And same thing with offerings from Palo Alto Networks or CrowdStrike or many of the other people in the cybersecurity space. And up until now, we've not spent a lot of money marketing and what have you to try to explain to people what those differences are, but that changes this year with the introduction of our new products and our different vehicles to market that we've already talked about. So we're going to spend some money this year talking to people about our differentiation and why we think we're necessary and better than some of the things that they might perceive as competitive products. Long-winded answer, but it's something we've been very focused on.

Well, I think it's very important for you to get some of the big money backing you, approaching different private investors or mutual fund companies that can give you an influx of capital to help you with that marketing.

For sure. And I would say, last year, we needed that badly. Right now, we're sitting in a pretty good cash position. And I meant to mention it on the call, but Kim alluded to it, we don't see a need to raise capital anytime in the near future, at least until next year at the earliest. And with any luck, we won't need to do it at all.

That concludes our Q&A session. I'll now hand the conference back to Tony Scott, President and CEO, for closing remarks. Please go ahead.

Well, thanks, everyone. I'm really looking forward to an exciting Q3 and Q4 this year. Our teams are highly motivated and energized to go do the work that we need to do to continue our success. We're prepared to continue our product innovation journey, and we've got a bunch of exciting things in the hopper that I think will excite our customers. We're trying out some of our new messaging at a trade show this week, and it seems to be working pretty well. So I'm looking forward to more of that. Kim and I are going to be doing a number of investor and non-deal roadshows this fall. And so we're looking forward to those conversations. And hopefully, it convinces a bunch of people to buy Intrusion stock and help our stock price continue to grow. And I'm looking forward to sharing our Q3 results. But in the meantime, I'm wishing everyone a healthy and prosperous end of summer and fall, and we'll look forward to talking with you when we share our Q3 results. Thanks, everybody.

Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.