Intrusion Inc. — Q2 2022 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. Intrusion develops and sells cybersecurity products and services, including its subscription-based INTRUSION Shield solution, to government and commercial customers. Amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $2.058 | $1.960 | $3.893 | $3.812 |
| Gross profit | $1.391 | $1.227 | $2.572 | $2.454 |
| Gross margin | 67.6% | 62.6% | 66.1% | 64.4% |
| Operating loss | $(3.961) | $(5.651) | $(7.945) | $(9.554) |
| Net loss | $(4.065) | $(4.951) | $(8.119) | $(8.854) |
| Loss per share, basic and diluted | $(0.21) | $(0.28) | $(0.42) | $(0.50) |
Q2 revenue increased about 5% year over year; six-month revenue rose about 2%. Consulting revenue was $1.7 million in Q2 and $3.3 million in the half, versus $1.7 million and $3.5 million, respectively. INTRUSION Shield revenue was $0.4 million in Q2 and $0.6 million in the half, compared with $0.1 million in each 2021 period. Sales and marketing expense fell to $1.8 million in Q2 and $3.3 million in the half, while general and administrative expense rose to $2.0 million and $4.1 million. Management attributed much of the half-year G&A increase to legal costs and consulting fees.
For the six months, operating cash outflow was $7.125 million, investing cash outflow was $0.476 million, and financing cash inflow was $10.519 million. Cash increased from $4.1 million at year-end 2021 to $7.018 million at June 30, 2022. The company reported working capital of negative $1.4 million, versus positive $2.1 million at year-end. Total notes payable were $9.730 million, comprising current and noncurrent portions; finance and operating lease liabilities also remained outstanding. Stockholders’ equity was negative $1.854 million.
Material changes and unusual items
- Gross margin improved year over year, while operating and net losses narrowed. Lower sales and marketing costs contributed to the operating-loss improvement; higher G&A and interest expense were offsets.
- In March and June 2022, Intrusion drew two Streeterville notes, receiving $9.3 million net in total. The notes have 18-month maturities, a stated initial 7% interest rate, and an effective interest rate reported as 38.7%, including issuance costs and accretion. Redemption may be settled in cash or shares under specified terms, including a share-settlement price based on 85% of a trailing VWAP measure.
- The company received $1.2 million net from its at-the-market stock offering through June 30; it reported a further $0.7 million after quarter-end. It subsequently restored the offering authorization to $50 million after its public float exceeded the applicable threshold.
- A $0.420 million gain from lease termination was recorded following settlement of the former-office lease litigation. The 2021 comparison included a $0.635 million gain from forgiveness of an SBA PPP loan.
- Intrusion began capitalizing qualifying internally developed software costs during Q2; $0.350 million was capitalized in the first half.
Outlook, risks, and contingencies
No numerical revenue, earnings, or cash-flow guidance is provided. Management said anticipated INTRUSION Shield revenue had been slower than expected and described continued sales and marketing cost reductions to align spending with revenue while building the product’s customer base. Management warned that if operations do not produce positive cash flow in the upcoming year and additional financing is unavailable on acceptable terms, the company may be unable to fund its plans or continue operations.
Revenue remains concentrated: U.S. government customers accounted for 65.7% of Q2 revenue and 68.8% of first-half revenue; three government customers represented 61.6% and 65.2%, respectively. Two commercial customers accounted for 30.5% of Q2 revenue. The filing highlights dependence on a limited customer base, timing of orders, and potential disruption to government spending or contract cancellation.
The consolidated securities class action had a settlement term sheet, but court approval remained pending. The SEC was investigating the company, which said it was cooperating and could not predict the outcome. A stockholder derivative action was filed in June; the company is obligated to provide certain assistance and indemnification. The former landlord litigation was dismissed under a confidential settlement. Management concluded disclosure controls were effective as of June 30, 2022.
Important facts for investors to verify
- Whether INTRUSION Shield revenue accelerates and customer concentration declines.
- Cash burn, negative working capital, and the company’s ability to secure funding or reach positive operating cash flow.
- Streeterville note repayment, interest accrual, potential share settlement and dilution, and remaining ATM capacity.
- Developments and potential costs from the SEC investigation, class-action settlement approval, and derivative litigation.