SideChannel, Inc. (OTC:SDCH) Q4 2025 Earnings Call Transcript

SideChannel, Inc. (OTC:SDCH) Q4 2025 Earnings Call Transcript December 3, 2025

Operator: Greetings. Welcome to the SideChannel SDCH Fiscal Year 2025 Q4 Financial Results Update Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Haugli, Chief Executive Officer. You may begin.

Brian Haugli: Thank you, John. It’s good to be back. Thank you, everyone, for joining us today. My name is Brian Haugli. I’m the President and CEO of SideChannel, Inc., and thank you for your continued support of SideChannel. We truly appreciate your confidence in our long-term vision and strategy. Fiscal 2025 was a year of disciplined focus and strategic investment for SideChannel. While revenue remained relatively flat at approximately $7.4 million, we maintained a strong gross margin near 48% and held operating expenses in check. Most importantly, we used this year to make deliberate investments that position us for meaningful expansion in 2026, particularly around Enclave. Our mission has always been clear, to simplify cybersecurity while helping organizations meaningfully reduce risk.

That mission continues to guide every operational and strategic decision we make. A little bit about Enclave, the center of our 2026 growth strategy. Enclave remains the cornerstone of that long-term growth strategy. During fiscal 2025, we made significant progress strengthening the platform, refining product market fit and expanding our pipeline across commercial and government sectors. As we move into 2026, our focus shifts decisively from foundation building to scaling adoption. We see demand accelerating for 3 areas, zero trust segmentation, secure remote access without VPN dependency, and three, protection of high-value assets across hybrid and OT or operational technology environments. Enclave is well positioned to meet this demand. We believe 2026 will be a breakout year for Enclave revenue growth, driven by stronger channel execution, direct enterprise sales and increased awareness of microsegmentation as a practical zero trust control.

To execute this expansion, we’ve made 2 critical leadership hires that significantly enhance our go-to-market capabilities. First, I’m excited to welcome Jamie Wolf as our new Chief Marketing Officer. Jamie brings deep experience in building high-performance revenue marketing engines for SaaS and security companies. Her focus is on sharpening our brand narrative, accelerating pipeline creation for Enclave and ensuring SideChannel as a consistent, high-impact voice in the market. You will see the impact of this hire throughout 2026 in the demand generation, partner marketing and overall market visibility. Secondly, we welcomed Rick Dill as our enterprise Account Executive dedicated to Enclave. Rick brings over 2 decades of IT and cybersecurity sales leadership, including proven success in scaling enterprise zero trust and network security solutions.

His role is laser-focused on accelerating large Enclave deployments in the enterprise and mid-market. Since joining, Rick has already strengthened our enterprise pipeline and sharpened our sales execution. These hires represent a shift from infrastructure building to revenue acceleration. And we continue to operate with strong financial discipline. Obviously, I’m joined today by Ryan Polk, our CFO, and our focus remains on improving revenue quality and retention, expanding higher-margin Enclave deployments, scaling efficiently through channel partners and strategic alliances and tight alignment between sales, marketing and product. We’re intentionally balancing growth with fiscal responsibility. Every investment we make is measured against long-term shareholder value.

Q&A Session

Looking ahead, we enter fiscal 2026 with a stronger commercial and government Enclave pipeline, an expanded leadership team fully aligned to growth execution, a refined go-to-market strategy centered on zero trust, microsegmentation and vCISO-led cybersecurity programs and a growing demand for practical alternatives to legacy perimeter security. We believe SideChannel is exceptionally well positioned to benefit from the industry-wide shift towards zero trust and operationally practical cybersecurity. Enclave is no longer an emerging product inside the company. It is a primary growth engine. In closing, I want to emphasize this. Fiscal 2025 was a year of strategic positioning. Fiscal 2026 is a year of execution and expansion. We are confident in our market opportunity, our leadership team, our technology and our ability to deliver increasing value for our customers and our shareholders.

Thank you again for your continued trust in SideChannel. We look forward to updating you as we execute on our growth strategy in the year ahead. With that, we can go to any Q&A, John, that you see online.

Operator: [Operator Instructions] And we do have a question coming from the phone lines from [ Luke Wheatley ], private investor.

Unknown Attendee: Brian, with those warrants set to expire in early 2026, do you all have any plans with raising capital, raising any debt after those expire?

Brian Haugli: Luke, great to hear from you again. Good to see that you’re still following us. I appreciate that. Right now, we are just — really just kind of looking at April as a milestone and adjusting really after that. Right now, I’ll tell you, there have been no discussions or plans for raising any capital or taking on any debt. We’re still very happy of our balance sheet structure, maintaining zero debt, and I don’t think we’re in a position or want to take on debt as a line to get any type of funding into the company. Same thing, I don’t think we’re looking at an equity raise either at this moment. But I will say just depending on kind of how things go in Q2, well, Q1 that we’re in right now and Q2, that’s going to feed into whether or not we determine if we want to do that. But like I said, nothing would happen before April, May of next year when those warrants expire as you stated.

Unknown Attendee: Got it. And then one more question. I think just looking at the history of your business, what we’ve seen since the Enclave growth strategy has been put in place, we’ve seen the vCISO revenue kind of go down as much as the Enclave has gone up. And in the press release today, there was no real discernment between what percentage was vCISO revenue versus Enclave. Could you give us a little indication of what percentage of revenue in Q4 was vCISO versus Enclave revenue?

Brian Haugli: Yes, Ryan, can you cover again on that?

Ryan Polk: Yes, happy to do that. Luke, we don’t — we didn’t disclose and haven’t disclosed revenue by quarter and by category. And of course, as we prepared for our annual filing that we’ll make in a couple of weeks here in the Form 10-K, there won’t be a Q4 results in there. So I can’t give you those specific numbers in this call. We won’t be disclosing that information. But I think we did give some overall I think for the year in our Form 10-K, which will come out in a couple of weeks, you’ll see information about the performance of the vCISO category versus the rest of our categories, and there’ll be some more commentary in that document. So if you could hold on for a couple of weeks, you’ll be able to read some of that. You’ll be able to read the answer to your question in the MD&A.

Operator: [Operator Instructions]

Ryan Polk: John, we did get one question submitted to us via e-mail. Could I read that now, please?

Operator: Absolutely.

Ryan Polk: So Brian, I think this is a question that you will address. It’s the — the question is, will Enclave possibly have any application for air, water or land drones?

Brian Haugli: Yes. So great question, something that Nick and I, our CTO, have discussed and gone after. Those drones are what you would consider operational technology or IoT, right, Internet of Things, small form factor, low power consumption, like low or no communications capabilities, right? So limited comms. Enclave plays very well here for a number of reasons. And I’m thinking predominantly from a military or DoD — U.S. DoD standpoint, first and foremost. I’m sure there are the commercial side as well. But I think when Nick and I think about Enclave applicability, it’s with the U.S. federal government and the DoD first. So yes, there is applicability there. Enclave can be deployed to these types of devices, whether it has an operating system — standard operating system like Windows, Linux or Mac or a firmware-based operating type system like a BLC or something that like a drone might be running on.

We have different ways to deploy Enclave for that. And yes, there definitely is applicability. I think the DoD customers that we’ve been — we’re already currently working with, that’s not their focus right now. They’re predominantly focused in large-scale networks research and defense weapon systems. If they want to bridge that to drones, that’s great. We would — we can definitely accommodate. But from a commercial standpoint, I think that’s a growing area. Obviously, General Brown, who is on our Board, a lot of insight from the U.S. Army as he’s retired from, but also in AUSA where we’ve gone to those conferences and seen these commercial drone systems trying to be sold into the DoD or the defense industrial base. So the applicability is there.

I think it’s interesting to see the adoption by the U.S. government. I think there’s a lot that we’ve heard and learned about where the adoption is on that by the DoD versus maybe what most people think. So we’re excited if we can get into that space. We’re going through federal sales partners to sell into the federal government right now. It’s not something we’re going with direct, which is not a bad thing. It just actually cuts down on our costs on having a sales structure and gives us a wider and broader sales approach by going through partners who know that space a little bit more intimately. So yes, I think 2026 will show whether or not that area is being adopted by and large. And then where we can fit in, we will definitely go after that.

Any other questions on online?

Ryan Polk: John, there’s no questions on the webcast.

Operator: We have no questions from the phone lines as well.

Brian Haugli: Okay. Well, let me just summarize. There’s a couple of questions that we’ve seen from the Boards. Hey, everybody, good to — I read everything you said. I haven’t been on in a while, but good to kind of see. I’m just going to kind of summarize, I guess, a couple of them. I think there’s some themes. So one of them, I guess, kind of summarize how critical is Enclave to the future growth compared to vCISO services, kind of the differentiation between our vCISO services group and our Enclave product group. My answer is Enclave is absolutely central to our long-term strategy. Our vCISO and advisory services remain important demand drivers and trusted entry points, but Enclave is our primary growth engine for scale, margin expansion and enterprise penetration.

Our services businesses often open the door to Enclave adoption and Enclave deployments in turn, deepen long-term customer relationships. This integrated model is proving to be a strong competitive advantage for us. So that’s just kind of one summary question. I think if I summarized another one, excuse me, let me go down here through the questions that were asked. Biggest risk kind of going into FY 2026. I had standing one-on-ones with my leadership team on a weekly basis and today, talking with our COO, Matt Klein, what we’re seeing in the market budgets with across customer bases, small, midsize and enterprise. A lot of businesses are honestly trying to figure out how to just manage in this climate. And in the United States, a lot of businesses we’re seeing are trying to figure out how to manage within this administration.

With 1 year kind of under everybody’s belt, it seems like everyone’s figured that out, and we are seeing a change for folks to better adopt outsourced services. It’s funny on our services side, we do better with tighter budgets and when layoffs are happening. We’re called in for that because lower cost alternative to full-time hires on the services. Our product, Enclave also multifaceted, multi-module, so it can do multiple different things that multiple tools would do. We can do inside of one platform. So there’s some competitive advantages to what we’re doing when the markets change. And then obviously, our ability to hold on to those clients through market upswings because of the value that we’re bringing, our diversity in our approach with services.

You’ll see what we’re doing with insider threat, what we’ve done with cloud security, obviously, bringing on and deploying more things with Enclave as a product being kind of multifaceted. So it’s just — it’s interesting that the market forces and what we’re seeing taking shape our visibility into those. But really, what’s the biggest risk going into FY 2026? Our biggest risk is execution velocity, ensuring that increased market interest converts into closed revenue at scale. That’s precisely why we invested in leadership across marketing and enterprise sales. The demand is real and execution is now the primary focus. So that’s how we’re looking to address that big risk going into 2026. I think that’s kind of the big ones, if I summarized a number of the questions that came from folks.

Yes, it looks like it’s kind of going through a real quick high level. So yes, we’re looking forward to releasing the 10-K and closing out the year. And then obviously, we’re already in Q1. So we’re excited to close out Q1 and kick into Q2 and calendar year 2026 and just keep moving along. So thank you, everybody, for being on the line and following the SideChannel story overall. And like I said any other time, feel free to reach out. You can hit us via our Investor Relations page on SideChannel. Feel free to e-mail us questions or comments, and we look forward to speaking with you at our next call.

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