Executive Summary

SideChannel reported fiscal year results alongside Q4 timing: FY 2024 revenue grew 12.8% to $7.42M, while gross margin compressed 290 bps to 47.8%; net loss narrowed to $0.79M from $7.01M, reflecting prior-year impairment and cost control .
Management emphasized achieving “sustainable cash provided by operations” and plans to deploy operating cash to expand sales—particularly to drive multiple consecutive quarters of Enclave product revenue growth .
Q3 showed modest sequential softness in revenue ($1.85M vs $1.93M in Q2) with gross margin improvement (48.9% vs 45.0%); operating expenses fell sequentially and YoY, with continued cash discipline .
No formal quantitative guidance ranges were provided; management expects FY 2025 gross margin improvement via better employee utilization, continued OpEx control, and channel-driven growth for Enclave .
S&P Global Wall Street consensus estimates for Q4 2024 (revenue/EPS) were unavailable at time of query; comparisons to estimates could not be made (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

Achieved positive cash flow from operations for FY 2024; management intends to sustain this in 2025, funding sales expansion to support Enclave growth .
Sequential gross margin improvement in Q3 (48.9% vs 45.0% in Q2) and continued operating expense reductions YoY and sequentially (Q3 OpEx $1.06M vs $1.35M YoY and $1.13M in Q2) .
Strategic momentum for Enclave: initial DoD foothold replacing multimillion-dollar legacy hardware (cost-out plus capability gains), and expanding channel partnerships to amplify reach; “we are very bullish on what we can do with this product” .

Management quotes:

“We accomplished our goal of establishing sustainable cash provided by operations this year and intend to keep that going during 2025… The next objective we want to achieve is delivering multiple quarters of Enclave revenue growth.”
“We had some underutilized employees… excess costs flowed through COGS… we changed our approach… [expect] to show up as a year-over-year benefit in our ’25 gross margin line.”
“They are lowering their costs and becoming more secure… pathway to expanded revenue… into the DoD.”

What Went Wrong

FY gross margin fell 290 bps to 47.8% due to underutilization and mix shift (third‑party software/services lower margin), though actions to improve utilization began in 2H FY24 .
Sequential revenue dipped in Q3 vs Q2 (−4.2%), reflecting purchase-cycle seasonality; management expects similar quarter‑over‑quarter pattern into FY25, pending Enclave pipeline maturation .
Capital markets constraints: toxic warrant “full ratchet” terms deter growth capital and make uplisting less likely near‑term; company focuses on operating cash and building Enclave track record first .

Financial Results

Note: The Q4 release was reported as the FY 2024 year-end; the company did not furnish standalone Q4 quarterly financial tables. Quarterly comparisons below use Q2 and Q3 FY 2024 disclosures; FY comparisons show year-over-year.

Fiscal Year Performance

Metric	FY 2023	FY 2024
Revenue ($USD Millions)	$6.57	$7.42
Gross Margin (%)	50.7%	47.8%
Gross Profit ($USD Millions)	$3.33	$3.54
Operating Expenses ($USD Millions)	$10.75	$4.36
Intangible Asset Impairment ($USD Millions)	$4.94	$0.00
Business Combination Costs ($USD Millions)	$0.21	$0.00
Operating Loss ($USD Millions)	$(7.41)	$(0.82)
Net Loss ($USD Millions)	$(7.01)	$(0.79)
Diluted EPS ($USD)	$(0.04)	$(0.00)
Cash & Cash Equivalents ($USD Millions)	$1.05 (as of 9/30/23)	$1.05 (as of 9/30/24)
Short-term Investments ($USD Millions)	$0.00	$0.25
Deferred Revenue ($USD Thousands)	$280	$499
Revenue Retention (%)	71.0%	69.2%

Quarterly Trend (Q2 → Q3 FY 2024)

Metric	Q2 2024	Q3 2024
Revenue ($USD Millions)	$1.93	$1.85
Gross Profit ($USD Millions)	$0.87	$0.90
Gross Margin (%)	45.0%	48.9%
Operating Expenses ($USD Millions)	$1.13	$1.06
Net Loss ($USD Millions)	$(0.25)	$(0.15)

Q4 2024: Standalone quarterly figures were not disclosed in the year-end 8‑K press release; the company discussed FY 2024 and strategic updates rather than detailed Q4 tables .

KPIs and Balance Highlights

KPI	Prior Period	Current
Deferred Revenue ($USD Thousands)	$647 (as of 6/30/24)	$499 (as of 9/30/24)
Cash ($USD Millions)	$1.10 (as of 6/30/24)	$1.05 (as of 9/30/24)
Revenue Retention (%)	72.3% (TTM ended 6/30/24)	69.2% (FY 2024)

Segment breakdown: Not disclosed with financial detail; management emphasizes Services (vCISO and broader cybersecurity services) and Enclave (software platform) in narrative .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Cash Flow from Operations	FY 2025	Not provided	Expect to sustain positive cash from operations; quarter-to-quarter may look neutral due to working capital timing	Qualitative maintained
Gross Margin	FY 2025	Not provided	Expect YoY improvement via improved scheduling/employee allocation	Qualitative raised
Enclave Revenue	FY 2025	Not provided	Objective: deliver multiple consecutive quarters of Enclave revenue growth; expanded sales hiring/channel focus	Qualitative raised
OpEx	FY 2025	Controlled	Remain controlled; investments prioritized toward Enclave sales	Maintained
Capital Markets/Uplisting	N/A	N/A	Reverse split/uplisting not imminent given warrants, valuation; prioritize fundamentals and Enclave traction first	Clarified stance

No numerical ranges provided for revenue, EPS, margins, tax rate, or segment-specific metrics in Q4 communications .

Earnings Call Themes & Trends

Topic	Q2 2024 (Previous Mentions)	Q3 2024 (Previous Mentions)	Q4 2024 (Current Period)	Trend
Cash flow discipline	First quarter of positive cash from operations; OpEx down ~$1.7M YoY run-rate	Second consecutive quarter positive ops cash	Achieved sustainable FY ops cash; plan to sustain in 2025	Strengthening
Enclave adoption & pipeline	POCs converting to deployments; manufacturing and DoD paid POC	Bullish on Zero Trust/microsegmentation demand; building POCs	DoD foothold replacing legacy hardware; channel OEM/white-label opportunities	Accelerating
Margin management	Mix headwind from 3rd-party resale; expect 2H margin better than 1H	Q3 gross margin up sequentially to 48.9%	Underutilization addressed; expect FY25 margin improvement	Improving
Sales & channel strategy	Building presence; proof points driving pipeline	Partnerships and channel deepening	Sales hires (May, Aug, next weeks), channel leader hired; pipeline “robust”	Expanding
Capital markets & warrants	Focus on ops cash; avoid dilution; OTC constraints	—	Warrants with full ratchet deter capital; uplisting deferred	Constraint persists
Regulatory/macro	SEC cyber disclosure shaping demand; vCISO adoption rising	Breach trends (Verizon DBIR), zero trust adoption	Availability risks and software quality issues (e.g., CrowdStrike incident) driving demand	Tailwind

Management Commentary

Strategy: “Deploying our cash provided by operations to build a sales team… delivering multiple quarters of Enclave revenue growth.”
Margin: “Underutilized employees… decreased our margins… approach to scheduling and allocating… will show up as a year‑over‑year benefit in our ’25 gross margin line.”
Enclave value proposition: “Replace multimillion-dollar legacy hardware… lowering their costs and becoming more secure.”
Channel and OEM: “Ability to white label it and OEM it into other solutions… now they’re selling our solution on our behalf.”

Q&A Highlights

DoD contract revenue specifics: Limited disclosure due to contract; initial deployment aims to displace legacy hardware; past performance in DoD seen as “worth gold” for expansion potential .
Reverse split/uplisting: Management will not pursue near-term; focus on fundamentals and Enclave traction; OTC limits institutional participation but warrants/valuation make equity raise unattractive now .
Warrants impact: Full ratchet clause would excessively dilute; deters new investors and precludes growth capital until April 2026 expiry .
Seasonality: Revenue shaped by purchase cycles; stronger calendar Q1–Q2; Enclave seasonality TBD; quarter-over-quarter curve expected similar to FY24 .
Board compensation correction: Option exercise price misadministration corrected; board aligned with equity-based incentives .
Technology assets: Polymorphic Encryption Core retained, available as Enclave option; focus prioritizes Enclave over legacy Cipherloc innovations .

Estimates Context

S&P Global consensus (revenue/EPS) for Q4 2024 was unavailable at the time of query due to data access limits. As a result, we cannot assess beats/misses versus Wall Street estimates for this quarter (Values retrieved from S&P Global were unavailable at time of query).
Implication: With no published consensus, investor focus should center on operational execution signals—FY cash flow positive, margin remediation actions, and Enclave pipeline conversion—rather than a one‑quarter beat/miss narrative .

Key Takeaways for Investors

Cash discipline underpins the story: FY 2024 operations generated cash; expect maintenance into FY 2025 while selectively investing in sales capacity—de‑risks near‑term liquidity and supports growth reinvestment .
Margin trajectory turning: Sequential gross margin improved in Q3; underutilization fix and service delivery changes point to FY25 YoY margin uplift—monitor gross margin prints in upcoming quarters .
Enclave is the growth lever: DoD foothold and channel/OEM strategies expand TAM while displacing costly hardware—watch for disclosed customer adds and recurring revenue signals to validate durability .
Capital markets constraints persist until April 2026: Toxic warrants and valuation deter equity financing and uplisting; stock narrative will likely hinge on operating performance and Enclave traction until cap table cleans up .
Seasonality tempers quarter-to-quarter volatility: Expect similar purchase-cycle dynamics; stronger calendar Q1–Q2; traders should align positioning with seasonal pipeline commentary .
Segment disclosure limited: With no granular segment tables, triangulate progress using qualitative signals (DoD, manufacturing case studies, channel wins) from calls and 8‑Ks .
Risk/Reward: Execution on Enclave’s multi‑module value proposition and channel leverage could re-rate the equity over time; monitor proof‑point cadence and margin trends as catalysts .

SideChannel, Inc. (SDCH)·Q4 2024 Earnings Summary