Intrusion Inc. (INTZ) reported a notable increase in revenue from its cybersecurity product Shield in the third quarter, with CEO Tony Scott highlighting a 50% sequential rise to approximately $300,000 in Q2. The company also secured a $2 million Department of Defense contract and expanded its business development efforts in the Philippines and Guam. Despite concerns over the pace of the marketing strategy, Intrusion Inc. remains optimistic about continuous growth and achieving breakeven by 2025.
Key Takeaways
- Shield revenue increased by 50% sequentially in Q3, totaling around $300,000.
- Intrusion Inc. added seven new customers and expanded existing contracts, totaling 19 new deals for Shield in FY 2024.
- A $2 million Department of Defense contract is expected to lead to further contracts in Q4 and Q1.
- Business development efforts in the Philippines and Guam are driven by heightened cybersecurity concerns.
- Intrusion is enhancing product offerings with AI capabilities in CommandHub.
- Operating expenses are scalable, with CFO Kimberly Pinson confirming growth without significant additional investment.
- The company expects continuous growth in its qualified pipeline each quarter.
- Intrusion Inc. aims for breakeven in 2025, although growth funding could affect this timeline.
Company Outlook
- Intrusion Inc. anticipates further contracts and revenue ramp-up from the Philippine election contract in early spring.
- The company plans to increase marketing expenditure in Q4 and Q1 to enhance marketing efforts.
- CEO Tony Scott is optimistic about reaching breakeven in 2025, with profitability as a long-term goal.
Bearish Highlights
- Concerns were raised about the slow progress of the marketing strategy, historically focused on digital efforts.
- Specific revenue projections beyond the Philippine election contract remain uncertain.
Bullish Highlights
- The significant increase in Shield revenue and new Department of Defense contract indicate strong product demand.
- Successful business development efforts in the Philippines and Guam showcase international market penetration.
- The company's scalable operating expenses allow for growth without significant additional investment.
Misses
- Intrusion Inc. does not expect to generate six figures in income each quarter due to the variability in revenue from new customers.
Q&A Highlights
- CEO Tony Scott addressed the company's aim for breakeven in 2025 and commitment to enhancing shareholder value.
- The company filed a shelf registration in mid-August to maintain funding flexibility and manage shareholder dilution.
- Intrusion Inc. is considering acquiring 5 to 10 new logos as material for growth and industry thought leadership.
Intrusion Inc. is navigating its path to profitability with strategic enhancements to its cybersecurity offerings and prudent financial management. The company's recent achievements, coupled with its optimistic outlook, suggest a commitment to growth and shareholder value. As the cybersecurity landscape continues to evolve, Intrusion Inc. positions itself to be a key player in protecting critical infrastructure and government sectors.
InvestingPro Insights
Intrusion Inc.'s recent financial performance and market position reveal a complex picture that adds context to the company's Q3 report and future outlook. According to InvestingPro data, Intrusion's market capitalization stands at a modest $6.12 million, reflecting its current position as a small-cap player in the cybersecurity sector.
The company's revenue for the last twelve months as of Q2 2024 was $5.42 million, with a concerning revenue growth decline of -15.41% over the same period. This decline aligns with the company's focus on increasing Shield revenue, which showed a 50% sequential rise in Q3, potentially signaling a turnaround in the making.
An InvestingPro Tip highlights Intrusion's impressive gross profit margins, which is corroborated by the data showing a gross profit margin of 78.06% for the last twelve months as of Q2 2024. This strong margin suggests that despite revenue challenges, the company's products command favorable pricing or have efficient production costs, which could be crucial for achieving the breakeven goal by 2025.
However, another InvestingPro Tip cautions that the company is quickly burning through cash, which may explain the recent shelf registration filing mentioned in the Q&A highlights. This cash burn rate, combined with the tip indicating that short-term obligations exceed liquid assets, underscores the importance of the company's efforts to ramp up revenue and secure new contracts, such as the $2 million Department of Defense deal.
The stock price performance has been notably poor, with InvestingPro data showing a -89.35% total return over the past year and a -65.1% return over the last six months. This aligns with the InvestingPro Tip noting that the stock price has fallen significantly over the last year and taken a big hit over the last six months.
For investors considering Intrusion Inc., it's worth noting that InvestingPro offers 12 additional tips that could provide further insights into the company's financial health and market position. These additional tips, available through the InvestingPro product, could be valuable for assessing the company's potential to achieve its stated goals and navigate the challenges ahead in the competitive cybersecurity market.
Full transcript - Intrusion Inc (INTZ) Q1 2023:
Operator: 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.
Josh Carroll: 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 would like to remind everyone that the statements made during this conference call related 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. With that I'll now turn the call over to Tony.
Tony Scott: 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 of our products and the attractiveness of our products in our target markets. But before I start, I just want to 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 '24, we've added -- we've had 19 new deals for Shield, 17 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 announced them. Our management of working capital will greatly reduce the need for additional capital in Q4, a very positive moment for us. And also the $2 million DoD contract we recently announced is a combination of Shield 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 time frame for similar capabilities in other regions of the world. So 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. And these trips have resulted in additional high-quality pipeline opportunities, which we expect to close in Q4 and some in Q1. So 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. And as a reminder, our market is managed service providers, managed service security providers, ISP, 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 CommandHub and that adds to the value that that whole platform brings to our customers. And 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. So between all of these, we're pretty excited about where we are in our prospects for Q4. So with that, let me open it up for questions, and then I'll have some summary comments at the end.
Operator: Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And your first question today is coming from Scott Buck from H.C. Wainwright. Scott, your line is live.
Scott Buck: Hi, Tony. Appreciate you hosting this call. First, just for clarification, your comments on revenue in the third quarter, it was Shield revenue is up 50% sequentially, right? Not total revenue?
Tony Scott: That's correct.
Scott Buck: And Shield revenue was roughly $300,000 or $400,000 in the second quarter. Does that sound about right?
Kimberly Pinson: $300,000.
Tony Scott: It was $300,000 according to Kimberly sitting across from me.
Scott Buck: 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 some pretty strong traction there beyond that?
Tony Scott: Yes. 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 we're just seeing heightened both concern and also those organizations seeking solutions that can help protect against that specific adversary. And so I think that's one of the drivers. The other driver, I think, is compared to the US, there's relatively a lot less advertising and penetration in other cybersecurity solutions there. So the audience there is more receptive to the kind of solution that we're offering because they're not inundated with 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.
Scott Buck: 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? I'm just trying to get a sense of what operating leverage looks like through '25 and maybe even into '26?
Kimberly Pinson: 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 where -- it's not a house account so to speak as in US 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.
Scott Buck: Thanks. Very helpful.
Tony Scott: And I'll add to. Yes, 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. And I think that's one of the things I've always been focused on is making sure that we don't get obsolete in terms of our technology footprint.
Scott Buck: Great. Well, I appreciate the color guys. Thank you for the time.
Kimberly Pinson: Thank you.
Operator: Thank you. The next question will be from Ed Woo from Ascendiant Capital. Ed, your line is live.
Edward Woo: Yes, 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 looking for cybersecurity software?
Tony Scott: 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 going to act quickly take a relatively long time. And it's been kind of tricky to predict how that's going to happen. We certainly see a surge of interest every time there's a cybersecurity incident. 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 moment till the time somebody decides to actually buy our solution can be all over the map as I just said. So 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. And 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. But that continues to be 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 [Technical Difficulty] and that's going to change in the near future.
Edward Woo: 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?
Tony Scott: It's growing every quarter. We expect to have increases in that qualified pipeline every quarter going forward.
Edward Woo: Great. Well, thank you for answering my questions and I wish you guys good luck. Thank you.
Tony Scott: Thank you, Ed.
Operator: Thank you. The next question will be from Russell Cleveland from RENN Capital. Russell, your line is live.
Russell Cleveland: Okay. 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 taking so long to get off the ground?
Tony Scott: Well, to be completely fair, we have not spent a ton of money on marketing historically. And the degree that we'd spend money on marketing is in the digital realm, not doing trade shows, expensive dinners, those kinds of things. I do believe that part of the challenge we've got 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 [Technical Difficulty].
Russell Cleveland: Okay. That's the only question I had. And I think that's at the essence of why our stock is where it is because of the fare of marketing. And as I said, it's been a puzzle because like your credentials are certainly good. We have very good people. We seem to have good technology. And maybe we need a new head of marketing or something here. But this is what really is a big elephant in the room is why has the marketing been more successful. But I appreciate your answer. Thank you so much.
Tony Scott: Yes. I think and I do think we will step up our marketing. We've got some great plans 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 a step up from traditional levels in that area. But thanks for the question.
Russell Cleveland: Thank you so much. Bye-bye.
Operator: Thank you. The next question will be from Scott Buck from H.C. Wainwright. Scott, your line is live.
Scott Buck: 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?
Tony Scott: I'm going to give it to Kim for that.
Kimberly Pinson: Hi, Scott. We filed the shelf in mid-August. The shelf that we had previously was expiring. And so 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 going forward, we plan to limit utilization of the ATM as much as possible and manage our working capital to minimize dilution to existing shareholders.
Scott Buck: Great. I appreciate that guys. That's it. Thank you.
Operator: Thank you. [Operator Instructions] The next question is coming from Walter Schenker from MAZ Partners. Walter, your line is live.
Walter Schenker: Hi, Kim and Tony. Can you just, obviously, we're all aware of the timeframe on our election. But since you have a major contract on the Philippine election. Can you just tell us, give us a better update on how the revenues for that contract will ramp?
Tony Scott: Well, so we throughout the fall here, we've been in the testing phase. Our technology has been delivered and the elections in the early spring kind of timeframe. 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, 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 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 10 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. Our focus is on making sure it works and works extremely well right now.
Walter Schenker: Again, to just follow-up, if the elections 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 first quarter only in the month around the election. 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?
Tony Scott: 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 the end of Q1, we know exactly what it is. But beyond that I think it's speculative for me to make any comments.
Walter Schenker: No, no. I got that. Sorry, Tony. I got that. So therefore in the fourth quarter and first quarters, it will contribute six figures to income each quarter or more?
Tony Scott: No, it won't be six figures each quarter.
Walter Schenker: Okay. And just one other question. You keep referring to logos. Just in sort of a break box question, the logo can range from a few thousand dollars to tens of thousands of dollars. Just trying to get a sense of what the people you're signing up for?
Tony Scott: Yes, they range all over the place, Walter. Some are tens of thousands of dollars, some are hundreds of thousands of dollars, so.
Walter Schenker: Okay. So 5 to 10 logos is material?
Tony Scott: Yes. And I think it's really, there's two things I think about when we think about logos. One is 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 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 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.
Walter Schenker: Okay, good. Okay. Thank you, Tony.
Operator: Thank you. And we did have another question coming from Anthony Medina, Anthony is a Private Investor. Anthony, your line is live.
Anthony Medina: Hey, Tony. Hey, Kim. I appreciate your time today. I just got a real quick question. Is it fair to say you see a path to breakeven or profitability in the financials in the next few quarters?
Tony Scott: We do in 2025 see a path to breakeven. I think as Kim always reminds me that path is dependent on making sure that if we have, 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, 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 happy our investors will be. And we've set targets for ourselves, and we're working hard to get to those.
Anthony Medina: Thank you so much.
Operator: 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.
Tony Scott: 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 want 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.
Operator: Thank you. This does conclude today's conference and you may now disconnect your lines at this time. Thank you for your participation.
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