Executive Summary

Q2 FY2025 revenue was $1.894M, down 1.7% YoY, but gross margin expanded 470 bps to 49.7% and operating loss narrowed to $61K; net loss improved to $54K as OpEx fell 11.2% YoY .
Management cited disciplined cost control and early Enclave contributions for margin improvement, while YoY revenue softness stemmed from last year’s loss of a few high-value vCISO clients, which has now cycled through results .
Cash, cash equivalents, and short-term investments were ~$1.3M at quarter-end; CFO highlighted a fifth consecutive quarter of growth in cash and positive operating cash flow, aided by seasonal renewal timing in Q2–Q3 .
No formal financial guidance provided; Board has authorization for a reverse split but no action planned until restrictive warrants expire, which currently constrains capital markets actions (potential future raise would target Enclave sales/marketing) .

What Went Well and What Went Wrong

What Went Well
- Gross margin expansion to 49.7% (+470 bps YoY) on cost control, improved service delivery margins, and early Enclave sales contribution .
- Operating discipline: OpEx down 11.2% YoY, driving operating loss improvement to $61K and net loss to $54K .
- Product traction: Focus on accelerating Enclave adoption; management confident in long-term growth potential with differentiators (ease of deployment, no cloud reliance, lower cost) vs. large competitors .
What Went Wrong
- Revenue down 1.7% YoY to $1.894M due to prior loss of a small number of high-value vCISO clients (impact has now rolled through TTM metrics) .
- TTM revenue retention fell to 62.4% (from 66.1% in Q1), reflecting the lingering effect of those client departures .
- Sales ramp headwinds: need to further enable and scale the sales team for Enclave and work through normal product launch cycles in a competitive landscape (Illumio, Zscaler, etc.) .

Financial Results

Metric	Q2 2024	Q1 2025	Q2 2025	Q2 2025 Consensus
Revenue ($USD Millions)	$1.927	$1.908	$1.894	N/A (no S&P Global consensus available; see Estimates Context)
Diluted EPS ($USD)	$0.00	$0.00	$0.00	N/A (no S&P Global consensus available; see Estimates Context)
Gross Margin (%)	45.0%	45.8%	49.7%	N/A
Operating Income ($USD Thousands)	$(260)	$(206)	$(61)	N/A
Net Income ($USD Thousands)	$(253)	$(195)	$(54)	N/A

Drivers: Margin improvement came from cost controls, better delivery margins, and early Enclave revenue; revenue softness from prior vCISO client losses now cycled through; positive operating cash flow benefited from renewal seasonality .

Segment breakdown: Not disclosed; company reports consolidated results .

KPIs and Balance Sheet Highlights

KPI	Q1 2025	Q2 2025
Cash, cash equivalents & ST investments ($USD Millions)	$1.4	$1.3
TTM Revenue ($USD Millions)	$7.6	$7.5
TTM Revenue Retention (%)	66.1%	62.4%
Deferred Revenue ($USD Thousands)	$519	$852
Accounts Receivable, net ($USD Thousands)	$585	$808
Weighted Avg Shares (Basic & Diluted, Millions)	226.022	227.910

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Financial guidance (Revenue, EPS, margins, etc.)	FY2025 / Near-term	None	None (company does not provide guidance)	Maintained (no guidance)

Additional capital markets context: Board authorized reverse split (up to 1:200) with no action planned yet; restrictive warrants currently limit capital raises/uplisting steps; any future raise would target Enclave sales/marketing .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q2 2025)	Trend
Enclave adoption & differentiators	FY24 focus to drive Enclave growth; building sales team; targeting higher-margin recurring software . Q1 call set three priorities: 1) grow Enclave, 2) increase vCISO, 3) expand programs; expanding sales (APAC/ME), channel strategy; two DoD clients; introduced machine identity management feature .	Reiterated priority on Enclave; cites early contributions to margin; competitive differentiation (ease of deployment, no cloud reliance, lower cost); working sales enablement; partner Koniag for federal .	Positive product traction; ongoing sales enablement; building federal channels.
vCISO services	FY24 commentary: pipeline strengthening; delivery capacity added without hurting margins . Q1: vCISO remains core wedge; supports Enclave cross-sell .	YoY revenue reflects prior loss of high-value vCISO clients; impact now cycled; rebuilding pipeline with renewed selling/marketing .	Stabilizing after churn; pipeline rebuild in progress.
Gross margin/OpEx discipline	FY24: 47.8% GM; OpEx down materially YoY; target sustainable cash from ops . Q1: OpEx control, cash provided by ops .	GM 49.7% (+470 bps YoY), OpEx down 11.2% YoY; narrowed operating and net losses .	Improving margins and operating leverage.
Cash flow & liquidity	FY24: full-year cash from ops; cash to build sales for Enclave . Q1: fourth consecutive quarter cash increase; CDs for interest income .	Fifth consecutive quarter of cash growth; positive operating cash flow; seasonal renewals support cash Q2–Q3; ~$1.3M cash+STI .	Healthy cash mgmt; seasonally supported inflows.
Federal/DoD channel	Q1: two DoD clients via partners; POC path to rollout; feature roadmap driven by DoD needs .	Continued federal focus; partner Koniag for access; good engagement at Global Force event .	Building credibility and pipeline in federal.
Capital markets (reverse split, warrants)	—	Reverse split authorization granted; no action planned; warrants limit raising/uplisting; would raise to fund Enclave sales/marketing if/when appropriate .	Optionality preserved; conservative posture.
International/channel expansion	Q1: hired APAC-focused salesperson; channel-led leverage via MSP/MSSP .	Continuing channel pursuit; sales enablement a current headwind to accelerate Enclave .	Expanding go-to-market capacity gradually.

Management Commentary

“Our gross margin rose to 49.7%, up nearly 5 percentage points from the same quarter last year. This improvement reflects disciplined cost control, better service delivery margins and early contribution from Enclave sales.” — Brian Haugli, CEO .
“For the fifth quarter in a row, we've had a growth in our cash balance with cash flow from operations being positive… annual contract renewals… help with cash flow during quarters 2 and 3.” — Ryan Polk, CFO .
“We’re highly focused on accelerating adoption of Enclave… a long-term growth driver.” — Brian Haugli, CEO .
“We don't need to raise capital… If we were going to raise capital, it would be to… double or triple down on sales and marketing around Enclave.” — Brian Haugli, CEO .
“On the reverse stock split… shareholders authorized our Board… We haven't taken any action… warrants… preclude us from [related] capital markets steps for now.” — Ryan Polk, CFO .

Q&A Highlights

Enclave headwinds and competition: Management cited competition from large vendors (Illumio, Check Point/Perimeter 81, Zscaler) but emphasized SideChannel’s advantages (easier deployment, no cloud reliance, lower cost). Biggest near-term headwind is sales enablement and scaling the team through normal product launch phases .
Federal go-to-market: Strong engagement with partner Koniag in DoD/federal; Global Force event generated qualified leads and validation via Board relationships (AUSA) .
Reverse split and capital strategy: Reverse split remains an available tool; no immediate plan; restrictive warrants limit raising/uplisting; any future raise would target Enclave sales and marketing .
Cash flow dynamics: Positive operating cash flow aided by seasonal renewals in Q2–Q3; approaching breakeven net income line .

Estimates Context

Wall Street consensus estimates (S&P Global): No consensus available for Q2 FY2025 for revenue, EPS, or EBITDA; hence, results are benchmarked vs. prior periods rather than estimates. Values retrieved from S&P Global.*

Key Takeaways for Investors

Margin and cost execution are the standout positives: gross margin expanded 470 bps YoY to 49.7% and OpEx fell 11.2% YoY, compressing losses despite slightly lower revenue .
vCISO churn impact appears largely behind them; pipeline rebuild and marketing investment should stabilize retention and support growth over time .
Enclave is the core growth vector; early DoD traction and machine identity management feature broaden the product’s use cases and differentiation .
Liquidity/cash discipline remains solid with positive operating cash flow; seasonal renewals provide near-term tailwind to cash in Q2–Q3 .
No formal guidance; capital markets flexibility preserved (reverse split authorization) but management is cautious until warrants expire; any raise would be growth-oriented (sales/marketing for Enclave) .
Near-term trading setup: narrative focuses on margin improvement and federal traction vs. modest top-line compression and lower TTM retention—updates on Enclave wins (especially federal) and continued margin strength are likely stock catalysts .

Additional Documents Reviewed for Trend

Q1 FY2025 8-K press release and financials (Dec 31 quarter) .
FY2024 8-K press release (annual) for baseline and strategy/operating trajectory .
Q1 FY2025 earnings call transcript for strategic priorities and GTM evolution -.
Q2 FY2025 earnings call transcripts for current-quarter themes and Q&A - -.

Press Releases in Q2 FY2025

Aside from the 8-K/EX-99.1 Q2 results press release, no additional Q2 press releases were found in the document set -.

SideChannel, Inc. (SDCH)·Q2 2025 Earnings Summary