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SideChannel, a cybersecurity company, reported its second-quarter fiscal year 2025 earnings with a revenue increase of 3.8% year-over-year, reaching $3.7 million. According to InvestingPro data, the company’s stock has shown strong momentum with a 14.29% gain over the past week, despite a slight decline of 1.04% in after-hours trading. The company’s current market capitalization stands at $10.17 million, and InvestingPro analysis suggests the stock is fairly valued at current levels.
Key Takeaways
- Revenue increased by 3.8% year-over-year to $3.7 million.
- Gross margin improved significantly to 49.7%, up by 5 percentage points.
- The company reduced its net loss to $54,000 from $253,000 a year earlier.
- SideChannel maintains positive cash flow from operations for the fifth consecutive quarter.
- Stock price fell by 1.04% in after-hours trading.
Company Performance
SideChannel demonstrated solid performance in the second quarter of fiscal year 2025, with revenue climbing to $3.7 million, a 3.8% increase from the previous year. This growth was driven by the company’s focus on its Enclave Zero Trust Network solution, targeting mid-sized and regulated organizations. The company also managed to increase its gross margin to 49.7%, reflecting improved operational efficiencies and cost management. InvestingPro data reveals the company maintains a healthy current ratio of 2.11, indicating strong short-term liquidity, with cash reserves exceeding debt obligations. Subscribers to InvestingPro can access 8 additional key insights about SideChannel’s financial health and growth prospects.
Financial Highlights
- Revenue: $3.7 million, up 3.8% year-over-year.
- Gross margin: 49.7%, increased by 5 percentage points.
- Net loss: Reduced to $54,000 from $253,000 in the previous year.
- Cash and cash equivalents: $1.3 million as of the end of March.
- Positive cash flow from operations for the fifth consecutive quarter.
Outlook & Guidance
Looking forward, SideChannel plans to accelerate the adoption of its Enclave solution, with continued investments in sales and marketing. The company is exploring potential capital raises to support growth initiatives and considering an uplisting to a different exchange. Despite these growth strategies, the company has not revised its earnings per share forecasts for FY2025 and FY2026, which remain at zero. InvestingPro analysis shows the company’s overall financial health score is GOOD, with particularly strong marks in growth potential. Get detailed insights and access the comprehensive Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks, for a complete analysis of SideChannel’s growth trajectory and market position.
Executive Commentary
"We remain confident in our strategy," stated CEO Brian Holby, emphasizing the company’s focus on expanding relationships and acquiring new clients. Holby also noted, "We’re not really pressured to go do that because we’ve got to balance that with shareholder dilution," addressing potential capital raising concerns.
Risks and Challenges
- Competitive pressure from companies like Illumio and Zscaler.
- Market uncertainty due to potential economic downturns.
- Challenges in scaling operations while maintaining cost efficiency.
- Dependence on the successful adoption of the Enclave solution.
- Potential dilution concerns if capital is raised.
SideChannel’s Q2 2025 earnings reflect a company in transition, focusing on strategic growth while managing operational costs. However, market reactions suggest that investors remain cautious, awaiting further clarity on the company’s long-term prospects and strategic initiatives.
Full transcript - SideChannel Ord Shs (SDCH) Q2 2025:
Brian, Conference Moderator: and welcome to the Side Channel Fiscal Year twenty twenty five Second Quarter Financial Results Update Call. At this time, all participants are on a listen only mode and a question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Brian Holby.
Sir, the floor is yours.
Brian Holby, CEO, Side Channel: Thank you. Good afternoon, everyone, and thank you for joining SciChannel’s fiscal Q2 twenty twenty five investor call. I’m pleased to report continued progress in our financial performance, operational execution and strategic focus this quarter. Despite a modest 1.7% decrease in year over year revenue, we delivered meaningful improvements in profitability and operational efficiency. Our gross margin rose to 49.7%, up nearly five percentage points from the same quarter last year.
This improvement reflects disciplined cost control, better service delivery margins, and early contribution from Enclave sales. We also reduced operating expenses by 11.2%, narrowing our net loss to just $54,000 This is a significant step forward compared to the $253,000 loss reported in Q2 of last year. Year to date, we’ve generated $3,700,000 in revenue, a 3.8% increase over the first half of FY twenty twenty four. These results demonstrate resilience and execution across our core offerings, even as we reposition parts of the business for long term growth. We acknowledge the challenges in our VC, so services segment.
As previously mentioned, we’ve experienced the loss of a handful of larger contracts in the back half of last fiscal year, which has impacted our trailing twelve month revenue retention. That said, we’ve built a more scalable, targeted go to market strategy and enhanced our sales capabilities, which are beginning to show traction. We believe these investments will yield strong results as the market demand for cybersecurity leadership continues to rise, particularly among mid sized and regulated organizations. So looking ahead, we’re highly focused on accelerating adoption of Enclave, our Zero Trust Network solution. Enclave continues to gain attention from both public and private sector organizations seeking secure segmented communication in increasingly complex environments.
And we’re confident in its role as a long term growth driver. We also improved our cash position this quarter, ending March with 1,300,000 cash, cash equivalents, and short term investments. So our ability to improve margin, reduce losses, and maintain a lean operational footprint, all while continuing to fund product development and go to market activity is a testament to our disciplined approach. So really, in summary, we remain confident in our strategy. Executing on our vision to be the leading cybersecurity partner for the mid market.
Two, we’re expanding relationships and acquiring new clients across our advisory and our product lines. And three, we’re investing where it matters to drive future growth, improve client outcomes, and enhance shareholder value. Thank you for your continued support and belief in Side Channel’s mission. We look forward to updating you again next quarter. I’ll now turn it over to our CFO, Ryan Polk, for a more detailed review of the financials.
Brian, Conference Moderator: Mr. Pork, sir, I believe you may be on mute.
Ryan Polk, CFO, Side Channel: Appreciate that, Brian. So for the fifth quarter in a row, we’ve had a growth in our cash balance with cash flow from operations being positive. And so I do note that this is the time of year when we have a fair amount of our annual contracts renewing, annual software contracts and annual service contracts where we use third parties to deliver those services. And a lot of that invoicing helps us with cash flow during quarters two and three, which is one of the reasons why we’re seeing this uptick in cash this quarter. And the rest of our financial statements I think are pretty straightforward.
A growth in gross margin as Brian highlighted, a decrease in operating expenses and a narrowing gap on our net losses just a few thousand dollars, 50 thousand dollars a net loss of just under $50,000 So getting close to having a positive net income line as well. So that concludes my comments. Nothing really more to add to this summary from Brian. Now we’ll go to Q and A.
Brian, Conference Moderator: Thank you, sir. At this time, we will be conducting our question and answer
Ryan Polk, CFO, Side Channel: you.
Brian, Conference Moderator: Thank you. We have a question from Luke Wheatley, who is a Private Investor. Sir, your line is live.
Luke Wheatley, Private Investor: Hey, guys. Congratulations on a good quarter. How are you all doing today?
Brian Holby, CEO, Side Channel: Good. I’m on mute. Good. Good.
Luke Wheatley, Private Investor: Okay. Good deal. I was wondering if you all could update us a little bit about the Global Force Symposium, just how that went. And then talk a little bit about what are your biggest headwinds, that you see with the Enclave market? And what are you all trying to do to overcome those and really accelerate growth?
Thank you.
Brian Holby, CEO, Side Channel: Yeah, no, good question. Yeah, Global Force was a good event. We had a full team down there, Booth, and a key partner of ours, CONI AG, which is a Alaskan native owned perpetual small business that does a lot of work within the Department of Defense and the federal government. They’re one of our key partners to sell into the federal space. And they are a great vehicle to be able to get into that space with very little friction and overhead for us while also being just phenomenal partners and really understanding our business and respecting and appreciating the caliber of both our professional services and the product that we have.
So yeah, I think overall went really well. We had some really great meetings while we were there. Obviously, General Brown, who is on our board, also is the CEO of AUSA, the organization that throws and puts on the event that was in Huntsville for Global Force. So obviously, him in our corner, making introductions validates what we’re doing and why we’re in the space. So I think overall, the team is really pleased with that.
Obviously, the sales team is working the leads that came from that event. And we’re pursuing other opportunities through our partner, Koniac. Totally concentrated on that part of the question and headwinds for Enclave. Yeah, that’s right. Okay.
Yeah, I mean, look, like with technology, right, you’ve got competition in the space. So we’ve got to stand out as a brand against the likes of Illumio. What was Premier eighty one? They got bought up by CyberArk or somebody else to go die. I think it’s Checkpoint.
Zscaler and the other likes, some large behemoths. And I think what bodes well for us is we know what their weaknesses are. We know why clients aren’t buying them. And those are our strengths. We’re easier to deploy.
We don’t have a cloud infrastructure as overhead or as a reliance to actually have our product work. And we’re lower cost. So the barrier to entry for us is better, in my opinion, than the competition. Where the headwinds are, obviously getting a sales team rallied around that, getting them spun up on it, educated, knowing how to sell it, where to sell it, where the right markets are, over the right thing. And that’s with any sales team with any product.
So I think we’re just going through the regular normal kind of process of launching and getting software product out to market. We’re doing that while also developing new features and capabilities for that product. You’ll see the new certificate management functionality to be able to handle non person identity or machine identity management. I mean, that’s a huge, huge ask. You’ll see Venafi was just bought by CyberArk because that’s all they did.
And that left a huge space and opening in the market for another player to step in. And that’s exactly why we built out that functionality because we’re already doing everything else that was so close and ancillary to it for us to go enable that type of a feature was almost zero lift. And we’ve already got our second largest DoD client now is really the genesis and reason for why we are pushing that feature because they asked for it and we have the ability to deliver it through Enclave. So for me, I don’t see like a solid wall. Headwind’s probably right because you can fight through a headwind, but it’s not gonna keep us and hold us back.
So I’m I’m still very confident in, you know, what we’re doing from, you know, just a sales standpoint, getting that, you know, into direct sales and into channel sales as well.
Luke Wheatley, Private Investor: Okay. Got it. Thank you very much. Is it okay if I ask one more question just while I’ve got
Brian Holby, CEO, Side Channel: you? Sure. Go ahead. Yeah. Please.
Luke Wheatley, Private Investor: So I know on previous earnings calls, you all talked about the restrictive warrants that Side Channel has, and I think those are due to expire in about a year. What sort of plans do you all have for the business, after those expire?
Brian Holby, CEO, Side Channel: I think we have the ability to act more like a public company and kind of raise capital if we needed to. Although right now, we don’t have a force that’s requiring us to do that. We don’t have any liquidity problems. We don’t have any issues on solvency. We don’t need to raise capital like a lot of OTC companies do just to stay afloat.
If we were going to raise capital, it would be to obviously double or triple down on sales and marketing around Enclave. So that would be the investment in there. Right now, I think we’ve purposely held back from trying to think about what to do specifically once those warrants expire. I feel like we actually have quite a bit of time. I know it’s a year away, but we have some time to think about that.
But yeah, definitely a plan for what can we now go do post warrants. And that’s really all those warrants are holding us back on is really the ability to raise. Really all other facets of our public company structure, our business as a whole, those are not really holding us back in any regard. But I’ll be honest, that is the one thing that we can do once those expire. But again, I don’t think we’re really pressured to go do that because we’ve to balance that with shareholder dilution.
And we’ve got to find the right banks, the right terms, the right banker. There’s a lot of options out there, they’re not all good when it comes to banking. So we have to find the right partner that’s going to understand our business, respect what we want to go do with a raise and potential uplift. Should we go that path and what we want to go do with it and what’s overall plan? So we’re going to be diligent about that.
We’re
Ryan Polk, CFO, Side Channel: going to
Brian Holby, CEO, Side Channel: kind of continue to kind of see what the market’s doing.
Luke Wheatley, Private Investor: Awesome. Thanks for the information. Appreciate it, guys.
Brian Holby, CEO, Side Channel: Sure. Yeah, no. Thanks for jumping on again. Good to hear from you.
Brian, Conference Moderator: Thank you. As we have no further questions on the lines at this time, I would like to hand the call back over to Mr. Hoagley for any closing remarks.
Brian Holby, CEO, Side Channel: Ryan, did you have any online that you captured?
Ryan Polk, CFO, Side Channel: Yeah. We’ve got one question, Brian. The question is, what is the outcome of the large reverse split? What are the next steps going to the next level index? And so this question is referring to a proposal that was in our most recent annual meeting in which our shareholders authorized our board to execute a one or 200 reverse up to a one to 200 reverse stock split.
We haven’t taken any action on that. It’s just we just ask shareholders for that authorization and we received it. We’re grateful for that. With this point, we don’t have any plans to any specific timing in mind of when we might use that opportunity. But we do we are considering how we can use that and when we might use that, but nothing specific at this time.
And of course, for the reason Brian just mentioned these warrants kind of put us off from doing anything that relates to a move to another exchange. Oftentimes the people that would help us do that want us to raise some capital at the same time. And as Brian mentioned, we’re not really in the market for that. And we’re really precluded from doing that because of these warrants. So, yeah, on the reverse stock split, no actions have been taken other than the shareholders granting us the right or granting our board the right to take that and we would time that probably with something like an up list if we were preparing to do that.
Brian Holby, CEO, Side Channel: Thanks, Ryan.
Ryan Polk, CFO, Side Channel: No other questions online.
Brian Holby, CEO, Side Channel: I think it’s good to point out, Ryan, and correct me if I’m wrong, this is our second or third year in a row where we have asked the shareholders to give us this So it’s something that we’ve been asking for in previous years to be able to have so that we can use it if we need to. And I think we’re going to continue to ask that so that we have that tool available to us should we need it. That way we can use it when we need to and not have to go out to the shareholders in some type of an emergency vote situation. So Yep. Yeah.
I don’t see I don’t see it as it’s not indicative of anything right now. It’s just the tool that we wanna be able to have available to us should we use it. So alright. So no other questions. I just I wanna thank you all for joining us today and for continued interest in Side Channel.
As we move forward, our focus remains on execution, delivering value to our clients, innovating through our solutions like Enclave, and driving sustainable growth for our shareholders. We appreciate your time, your questions and your support. And we look forward to speaking with you again next quarter. So everybody stay safe and thank you again.
Brian, Conference Moderator: Thank you. Ladies and gentlemen, this concludes today’s call. You may disconnect your lines at this time, and we thank you for your participation.
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