Welcome to Intrusion Inc.'s Third Quarter 2025 Earnings Conference Call and Webcast. 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 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 would like to remind everyone that statements made during this conference call relate to the company's expected future performance, future business prospects, future events or 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.

Thank you, Josh, and good afternoon, and thank you all for joining us today. I'm pleased to report that during the third quarter of 2025 we continue our path towards achieving our goal of creating sustainable growth and long-term profitability. And a few of our highlights of our progress in Q3 include our sixth consecutive quarter of sequential topline growth, demonstrating consistent execution and increasing demand for our products, continued near 0 customer churn, which we view as a testament to the value of our offerings, and the expansion of our Shield technology offering through the launch of Shield Cloud on the AWS marketplace. I'd also highlight the ongoing rollout of our critical infrastructure solutions, reinforcing the demand that we see to help protect these essential assets from cyber threats. And finally, the strong momentum we are seeing from our solution partner, PortNexus, as they continue to deploy the MyFlare Alert platform. Now none of what we achieved this quarter would be possible without our incredible team, and I'm deeply grateful for the passion and the commitment our employees show every day in serving our customers and advancing our mission. I'd like to provide some additional context on a few of these highlights, all of which are aimed at positioning Intrusion for sustained growth. First, we're really excited about the launch of our Shield Cloud offering on the AWS marketplace, which we believe will help drive long-term growth for our business. By making Shield Cloud available on the AWS marketplace, we're not only expanding the opportunity for customers to access our Shield technology, but we're also positioning our cybersecurity engine directly where innovation is taking place. Although still in the early stages, we're already seeing encouraging traction with new potential customers, which we believe will begin contributing positively to our…

Thanks, Tony, and good afternoon, everyone. Third quarter 2025 revenue was $2 million, up 5% sequentially and 31% year-over-year. Growth was driven by expansion of work performed under the contract with the U.S. Department of Defense, which utilizes both Shield technology and consulting services. Consulting revenue of $1.5 million is up $0.1 million sequentially and $0.4 million year-over-year. Shield revenues in the third quarter totaled $0.5 million, which was relatively flat sequentially but up approximately $0.1 million year-over-year. The increase in Shield revenue primarily reflects the work performed under the previously noted DoD contract work. As Tony mentioned, we are continuing to see strong demand for our services with both governmental and commercial customers and anticipated deeper penetration in both sectors, which will result in further changes to our customer mix. Third quarter gross profit margin was 77%, down 58 basis points year-over-year, which is consistent with expected variability based on product and service mix. Operating expenses in the third quarter of 2025 totaled $3.6 million, an increase of $0.1 million sequentially and $0.4 million year-over-year. The increase sequentially was largely driven by an increase in sales and marketing expense related to increased participation in trade shows and programs to generate brand awareness and concise product marketing messaging. We may continue 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 higher share-based compensation from equity grants made in the first quarter, timing of merit increases and minor changes to staffing. Net loss for the third quarter of 2025 was $2.1 million or $0.10 per share compared to a net loss of $2.1 million for the third quarter of 2024. Turning to the balance sheet. From a liquidity perspective, on September 30, 2025, we had cash and cash equivalents of $2.5 million and short-term investments in U.S. treasuries of $2 million. Subsequent to quarter end, we received $3 million in cash related to the DoD contract extension, which increased our cash position, inclusive of short-term investments to $7.5 million, which we believe is sufficient to fund operations through the remainder of 2025 and into early 2026. With that, I'd now like to turn the call back over to Tony for a few closing comments. Tony?

Thank you, Kim. And I think the third quarter was another step in the right direction for Intrusion as we are continuing to make great progress towards achieving our goal of generating sustainable growth and long-term profitability. And while we're proud of the progress we've made, we're not satisfied with our overall financial results. We know there's still more work to do, and we're confident that we can and will deliver stronger performance over time. Achieving this will require continued discipline and time, but we believe our ongoing investments in the business, the strength of our expanding pipeline and the improved engagement we're seeing with both customers and partners, has positioned us well to drive enhanced financial results. Now this concludes our prepared remarks. And I'll now turn the call over to the operator for Q&A.

[Operator Instructions] The first question comes from Scott Buck with H.C. Wainright.

Tony, I think you touched on it a little bit in the prepared remarks, but I wanted to kind of dig in a little bit deeper on the infrastructure work with the DoD. When do you get far enough along the process or prove yourself enough that maybe you open the door to some additional work of a similar nature with them?

Already in progress. So with this first project, it's opened the doors for us to have conversations about deployment in other locations. Right now, we're in a one island location in the Pac Rim, but there's lots of islands there. There's also domestic opportunities for this from a government perspective and then there's, we think, even more opportunities from a private sector or a commercial perspective. So I'm particularly excited about this product. These are -- like we've seen in this particular case, it's a big dollar sale when it happens and we think we have an opportunity for many more of these during not only the next quarter, but next year. So it's a big area, a big opportunity for us. Now we've got to close them. We got to get government funding squared away, which as we've all experienced, is a daily up and down sort of situation. But I think the potential is big for this product. It is our most successful product at this particular point. So we're going to bet on it and get all we can.

No, that's great to hear. Now Kim, do you need to add heads or any kind of other supports to kind of press on those opportunities?

No. There's a fairly small capital investment because there is a device that goes with this infrastructure monitoring. But otherwise, we don't expect or anticipate having to add heads or increase our operating expenses to any large degree.

All right. Perfect. And then, Tony, I want to ask -- I know it hasn't been very long, right? But I'm curious what the experience has been like so far on AWS where you may be seeing some interest and any kind of initial feedback you guys are getting, I think, would be helpful.

Yes. It's -- we've gone through -- we've actually been in AWS for the bulk of the third quarter and now into the fourth quarter. And we've already done a couple of updates to make it easier to configure and install. And we have one more big update coming shortly that I think will make it even easier. And this is all based on feedback we've gotten from our initial beta customers and so on. And I think with these changes, it will significantly make it easier for people to adopt. So a lot of excitement around it. The numbers aren't huge at the moment, but we're on our plan. We're starting to do the marketing and advertising work that I think we've talked about on prior calls. And our expectation is that, that's going to pay off. And the lessons we've learned from this will also apply as we get into the Azure marketplace on the Microsoft platform. And so I'm expecting that the acceleration there can go even quicker than what we've experienced in the AWS environment. But I'm very positive about it.

Good. No, that makes sense. And on Azure, it sounds like it could be end of this quarter it could beginning of '26. What steps do you have left there to get up and active?

Well, we created a new kind of gold from scratch variant of Shield for the cloud that makes it much easier to deploy in these virtual environments. And that's the one that we're going to target for Azure as well. So easier for -- a better build for us, easier for the customer to adopt. The current AWS 1 has -- is coupled with pfSense, the open source firewall and the new versions that will go into AWS shortly and also Azure are just Shield and not coupled to pfSense, and we think that's going to attract a broader set of customers. We'll still offer the pfSense version in AWS. So we'll actually have two properties in AWS, one with pfSense and one stand-alone. And probably in Azure...

Does that change the way you price it, Tony?

Pardon me? Does it change the pricing?

Does that change the way you price it? Yes.

Not a whole lot because the pfSense is open source. So there's no royalties or anything like that associated with it. But what we heard from customers is, some of them want choice around which firewall they use. And while we like our technology, they had a different choice for firewall than what we chose, which was pfSense. So this will give customers broader choice. If they don't have a firewall and want one and like open source, they can use that. If they want to choose something else but still want our technology, they can have that choice as well.

Congrats on the progress this quarter.

The next question comes from Ed Woo with Ascendiant Capital.

Congratulations on the progress. My question is on your channel partner, PortNexus. What are you able to do there that is able to give you the successes? And is this able to be translated to other channel partners?

Yes. So what we're providing to PortNexus is endpoint security for their solution that's deployed in classrooms and other public sort of places. And that endpoint security is important so that the devices are effectively tamper-proof and safe from hacking and so on. I'm excited about it because as we've done trade shows with PortNexus and school administrators come by and see the demo and understand the capability, they get pretty excited. And as I kind of hinted the sales cycle, it looks like it's pretty short. The feedback is I want this now kind of thing, which with other solutions, there's a much longer conversation that ordinarily takes place. So we're in a couple of school districts already, and I think as experience with this product grows, the excitement is going to only accelerate. We're attending all the right trade shows with PortNexus, but also word of mouth is beginning to get out that this is a pretty cool solution. So at the end of the day, we've got great expectations for this.

Can you translate these opportunities to other channel partners? Or is this very specific just to PortNexus?

Well, we can certainly port it to or extend it to other endpoint kinds of solutions where network security is of paramount importance, and we are looking for those opportunities. I'd say, the success with PortNexus will certainly be a good indicator for other potential partners as well. And so yes, I think it can extend and we are looking for those kinds of opportunities.

Great. And my last question is, as you rolled out in AWS and then also on the Azure platform soon, do you care where your customer buys it? Is there any difference in profitability and R&D costs?

No impact on R&D costs. We're only at this point, extending it to U.S. customers. We're not in the global marketplaces. So that kind of, by definition, restricts where it's for sale, but it doesn't really impact our costs one way or the other.

And you don't really care where your customer gets it because the profitability margins are about the same?

Yes. Correct.

[Operator Instructions] The next question comes from Howard Brous with Wellington Shields.

Tony, congratulations on the increase quarter-over-quarter-over-quarter. I have a couple of questions. Can you discuss the revenue opportunity with OT Defender as an example?

I can talk about it generally. I mean, I think the nice thing about these is as compared to our Shield or PortNexus deals that tend to be smaller, these tend to be bigger sales. $100,000, $200,000 above kind of opportunities. And so as you get one of these, there's a more meaningful impact in terms of revenue and overall sales. So obviously, that's important in terms of the revenue opportunity. The second thing is it's pretty widely recognized at this point that the OT environment is probably the biggest area of underinvestment from cybersecurity perspective. And it also happens to be one of the biggest targets for nation state actors who in anticipation of some sort of aggressive activity would love to take out water systems and the electrical grid and communication systems and the things that are necessary to sustain life in most places around the world. A lot of the environment in these OT spaces is old gear that over time got hooked up to networks, but we're never ever designed to fend off the kinds of attacks and threats that are just a part of our modern day world. And the reality is we've -- as a nation and even internationally, we've been a little slow to wake up to this aspect of cybersecurity, it's particular kind of threat. So we think the market opportunities are really big. And we think we have a very cost-effective and now proven solution to this particular problem, and we're going to do everything we can to let everybody know what we've got and what its capabilities are. So I think I'm pretty bullish on this. It's going to take work. But I'm excited not just from a revenue perspective for intrusion, but I'm excited for the protection, I think this can bring to some very vulnerable environments in our cities and states and critical infrastructure generally. And then as I mentioned on the call, it also applies to commercial environment, shop floors and other manufacturing environments and so on. And all of those are pretty vulnerable at this particular point. If you can disrupt manufacturing or disrupt the production of goods, that's got a pretty serious economic impact. And I think our technology is good to help protect those environments as well. So a pretty broad-based market or surface for us to go after.

So the second question, the same question with revenue opportunity on PortNexus school safety offering, which I -- from my understanding, should be critical with every school in the country.

Yes. That one is probably not as big as the critical infrastructure stuff. But this is one of those things where once you see it, you can't unsee it. And as we've experienced the trade shows, the school administrators love the simplicity of it and also the sort of capability that the PortNexus solution provides. And the critical thing there is visibility in that first 1 to 5 minutes of an incident where you have really good and better situational awareness than you do with any other solution that's out there. And the first responders call that the critical first few minutes. If you can understand what's going on and have situational awareness, you can have a much better response, and that's what the PortNexus solution provides. So we're happy to be a part of that clearly. And I think just like you've seen police departments all over have body-worn cameras. I think ultimately, this is going to be a required thing in every school classroom or at least public school classroom in the country because it's just such a good solution. So we're happy to partner with PortNexus on that journey.

So my last question -- well, let me come back to the PortNexus. Any sense for 2026 of a revenue opportunity?

I'd be wildly guessing at this point, Howard, but our eyes are towards up and onward from a revenue perspective. So we're, I think, genuinely excited about the opportunity. Clearly, we've got to execute. Clearly, we've got to get in front of customers, make the case and go forward. But I think we have all the right things in our briefcase to go sell, and we're as excited as I've ever been about it.

My last question, then one comment afterwards Shield Cloud revenue opportunity?

Again, as I said on the call, that's the place where innovation is happening. And so the growth in small, medium business, they've moved to the cloud and are moving to the cloud, and that's where the economy is growing the fastest. It's probably the biggest opportunity from a tech standpoint for that part of the market. And we'll see. Again, we've got to execute. We've got to continue to work our marketing plan and demand gen plan, but we've seen a lot of other companies do it. And we're going to be a fast follower in terms of all of the things that we've seen work in that journey. So hard to exactly predict, but we have, I would say, great expectations.

At what level -- last question, what level of revenue per contract, would you make a public announcement $100,000, $1 million?

It's not so much like -- well, it's not so much -- in some cases, Howard, it's not the level of the dollar amount that would determine whether we can make an announcement. We actually signed some deals in Q3 that didn't produce revenue in Q3, but it will produce revenue in Q4, that by contract, we were prohibited from announcing. So the only way you'll see them is when revenue shows up after the end of a quarter. And that's not uncommon in the cybersecurity space. We'll announce whatever we can when we can, if it's significant. I'm not going to announce a $5,000 deal or a $10,000 deal or something like that. But if it's $100,000 or $400,000 or $1 million, I'll certainly announce it if I'm allowed to.

The next question comes from Jerry Yanowitz with -- he is a private investor.

Tony, do you believe your intellectual property alone could be worth multiples of your current stock price and I'm just looking for a simple yes or no answer.

Yes.

And based on your knowledge in the cybersecurity market, do you believe your products could integrate well with a larger cybersecurities company suite of products. Yes or no?

Yes. Yes, yes, I do. It may not always be the obvious first names that come to mind. But the answer is yes. It's I think obvious that, that could be very interesting and exciting for us.

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

Well, thankfully, the -- it looks like the government shutdown is close to coming to an end. And I think we all breathe a sigh of relief in that regard. We're looking forward to working with our government partners as we've talked about at some length already today. This is the opportunity that's in front of us right now is doing better protection for critical infrastructure, whether it's public sector or private sector, it's the biggest cybersecurity opportunity, I think there is out there. And so with the shutdown behind us, I think it opens the door for us to move ahead. We'll let you know is when we can and as soon as we can when anything has developed. But as I said earlier, I'm pretty excited about the opportunity and look forward to having this call with you for the next quarter in our annual results. So thanks, everybody, for your patience. We're working hard. We've got a great team on this, and I think we're making great progress. So talk to you all soon. Thanks.

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