Executive Summary

Q1 FY25 revenue grew 9.9% YoY to $1.91M with gross margin of 45.8% (down 290 bps YoY); OpEx fell 2.1% YoY; net loss improved to $0.20M; cash, cash equivalents and short-term investments ended at ~$1.4M .
Management reiterated no formal financial guidance but emphasized three priorities: accelerate Enclave (software) adoption, expand vCISO services, and deepen program adoption at existing clients; near‑term cash from operations will fund higher sales and marketing investments .
Execution catalysts: growing federal traction (now two DoD clients), new Enclave “machine identity management” capability, channel strategy leverage, and APAC business development addition; all positioned to expand Enclave placements and pipeline .
Watchlist risks: gross margin compression vs. prior year (45.8% vs. 48.7%), and trailing 12‑month revenue retention down to 66.1% (from 72.3% in Q3 FY24) as churn normalizes; cash remains stable enabling targeted growth investments .

What Went Well and What Went Wrong

What Went Well
- Revenue and cost control: “Revenue of $1.9 million; 9.9% greater than FY 2024 first quarter… Operating expenses decreased $24 thousand, or 2.1%... Net loss of $195 thousand” and cash/short‑term investments up to ~$1.4M .
- Strategic clarity and higher‑margin mix: CEO’s three objectives place Enclave first as a scalable, higher‑margin product to reinvest in R&D and profitable growth .
- Federal and channel progress: Two DoD clients with an initial paid POC expected to scale; Enclave added machine identity management to win sector‑specific use cases . Also expanding channel motion to sell “to one, reach many” via MSP/MSSP partners .
What Went Wrong
- Margin compression: Gross margin declined 290 bps YoY to 45.8% (vs. 48.7% in Q1 FY24), pressuring profitability .
- Retention drifted lower: TTM revenue retention was 66.1% as of Dec 31, 2024, below 69.2% at FY24 and 72.3% at Q3 FY24, indicating churn or down‑sell weighed on services .
- No numerical guidance: Management reiterated they do not provide formal financial guidance; investments will step up for sales/marketing, which may mute near‑term cash build .

Financial Results

Note: Prior quarter (Q4 FY24) press release was full‑year; a quarter-by-quarter result was not disclosed there. Sequential context references the latest available prior quarter (Q3 FY24) from company 8‑K.

Metric	Q1 FY24	Q3 FY24	Q1 FY25
Revenue ($USD Millions)	$1.736	$1.846	$1.908
Gross Profit ($USD Millions)	$0.845	$0.902	$0.874
Gross Margin %	48.7%	48.9%	45.8%
Total Operating Expenses ($USD Millions)	$1.104	$1.056	$1.080
Operating Income (Loss) ($USD Millions)	$(0.259)	$(0.154)	$(0.206)
Net Income (Loss) ($USD Millions)	$(0.246)	$(0.146)	$(0.195)
Diluted EPS - Continuing Operations ($)	$(0.00)	$(0.00)	$(0.00)
Weighted Avg Diluted Shares (Millions)	214.579	222.773	226.022

Estimates vs. Actuals (S&P Global consensus)

Consensus was unavailable in our S&P Global pull for this micro-cap during this window (request limit/coverage constraints). We attempted to retrieve Q1 FY25 Revenue/EPS consensus but were unable to obtain values. Actuals are shown above .

KPIs and Balance Sheet Trends

KPI	Q3 FY24	Q4 FY24	Q1 FY25
TTM Revenue ($USD Millions)	N/A	$7.4	$7.6
TTM Revenue Retention %	72.3%	69.2%	66.1%
Cash + Short-term Investments ($USD Millions)	$1.1	$1.3	$1.4
Accounts Receivable, net ($USD Millions)	N/A	$0.732	$0.585
Deferred Revenue ($USD Millions)	N/A	$0.499	$0.519

Segment breakdown and additional KPIs: The company did not provide a revenue breakdown by segment (Services vs. Enclave) in the Q1 FY25 press release; Enclave adoption progress and DoD expansion were discussed qualitatively on the call .

Guidance Changes

Management did not issue quantitative guidance; reiterated strategic focus and indicated continued investment in GTM funded by operating cash.

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY25	None	None (no formal guidance given)	Maintained (no guidance)
Gross Margin	FY25	None	None (no formal guidance given)	Maintained (no guidance)
Operating Expenses	FY25	None	Increase investment in sales/marketing to support Enclave and services (directional only)	N/A (directional)
Cash from Operations	FY25	None	Expect continued use of cash from ops to fund growth initiatives (no numeric)	N/A (directional)
Other items (OI&E, tax rate, dividends)	FY25	None	None disclosed	Maintained (no guidance)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q3 FY24)	Previous Mentions (Q4 FY24)	Current Period (Q1 FY25)	Trend
Enclave focus and economics	Began using positive operating cash to invest in sales/marketing with added emphasis on Enclave	Detailed Enclave capabilities (microsegmentation, host firewall, machine identity mgmt emerging) and DoD use case	“Three objectives” put Enclave first; higher margins and scalability to reinvest in R&D	Strengthening
Sales/marketing and channel	Initiated sales/marketing ramp funded by cash from ops	Robust channel pipeline; partner-led access to many customers	Hired BD from CrowdStrike; APAC/Middle East sales addition; expand MSP/MSSP channel for Enclave	Accelerating
Federal/DoD traction	Not detailed in Q3 PR	Initial DoD customer with pathway to broader roll‑out	Two DoD clients; second larger, paid POC aiming for enterprise deployment	Building momentum
Cash flow and capital markets	“Positive cash flow from operations”	Achieved full‑year cash from ops; warrants constrain raising capital	Fourth consecutive quarter of cash increase; $1.4M cash+ST inv; will invest in GTM	Stable ops, constrained capital
Seasonality and budgets	—	Seasonality tied to corporate and federal budget cycles	Year‑end dynamics: some cut spend; others use remaining budget; Q1 framed by mixed seasonality	Ongoing
Retention	72.3% TTM	69.2% TTM	66.1% TTM	Softening

Management Commentary

Strategic priorities: “We really have 3 areas where our growth is going to sit… in order: Growing our proprietary software revenue with Enclave, increasing our vCISO service engagements, and expanding program adoption at current clients.”
Enclave margin rationale: “Proprietary software offers significantly higher profit margins compared to services, enabling us to reinvest in R&D… while enhancing our overall profitability.”
Federal traction: “We do have 2 Defense Department clients now… the second… significantly larger… a paid proof of concept… then implement and roll out to their enterprise environments.”
Cash and investments: “Revenue growth just under 10%… fourth consecutive quarter of cash increase… We end the quarter with $1.4 million of cash and cash equivalents, and short-term investments… we are going to be making some investments using that cash.”
Channel leverage: “Channel… filled with MSPs/MSSPs… each have tens to hundreds of clients. Sell to one and effectively sell to many.”

Q&A Highlights

International expansion and talent: Added APAC/Middle East sales (David Tran) with deep regional network; opportunistic hire aligned to Enclave push .
U.S. GTM buildout and channel: Hired BD from CrowdStrike; doubling down on direct outbound plus MSP/MSSP channel to scale Enclave placements .
DoD details and product roadmap: Two DoD clients; second is an integration into a partner solution; added machine identity management capability to Enclave to meet DoD use case .
Revenue recognition: Enclave annual licenses billed upfront, recognized ratably monthly via deferred revenue (policy described by CFO) .
No formal guidance; capital discipline: Management reiterated no numerical guidance; will fund GTM through operating cash .

Estimates Context

We attempted to retrieve S&P Global consensus estimates for Q1 FY25 (EPS and revenue) but were unable to obtain values due to request limits/coverage constraints for this micro‑cap. Actual results are reported from company filings above .
Given the absence of published consensus in our pull, we cannot assess an EPS/revenue beat/miss versus S&P Global for Q1 FY25 at this time.

Key Takeaways for Investors

Modest top‑line growth with disciplined OpEx and improving net losses indicates the core model remains intact heading into FY25; cash + ST investments at ~$1.4M provide runway for targeted GTM investments .
The narrative pivot is clear: drive Enclave (higher‑margin software) while vCISO/services act as wedges to land, expand, and cross‑sell—this mix shift, if executed, should enhance margin and cash generation over time .
Federal validation is a potential step‑function catalyst: two DoD clients, including a larger paid POC aiming to scale enterprise‑wide, alongside Enclave’s machine identity management, could materially influence adoption in defense and regulated sectors .
Channel leverage (MSP/MSSP) and new APAC coverage expand distribution without linear headcount growth—watch partner enablement velocity and deferred revenue build as leading indicators .
Risks to monitor: gross margin pressure vs. prior year and declining TTM revenue retention, which point to services churn/mix headwinds; sustained Enclave wins are needed to offset and improve these KPIs .
No formal guidance raises uncertainty; however, management signaled continued investment funded by operating cash rather than dilutive capital raises—consistent with prior commentary on capital constraints/warrants .
Near‑term stock catalysts: evidence of sequential Enclave ARR growth, larger federal deployments, and partner‑led multi‑tenant wins; any stabilization in retention and improvement in gross margin would support sentiment .

Additional Q1 FY25 Press Releases (Context)

Recon InfoSec partnership expands combined offering: SideChannel vCISO + Recon managed security operations—broadens channel/solution reach into mid‑market .

SideChannel, Inc. (SDCH)·Q1 2025 Earnings Summary