Intrusion Inc.

Good afternoon and welcome to Intrusion's fourth quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, today's conference call is being recorded for replay purposes. I would now like to turn the call over to Joel Akronowitz of Shelton Group Investor Relations. Joel, please go ahead.

Thank you, Rob. Good afternoon, everyone, and welcome to Intrusion's fourth quarter and full year 2020 earnings conference call. I'm Joel Akramowitz, managing director of Shelton Group, Intrusion's best relations firm. Joining me today are Jack Blunt, Intrusion's president and CEO, and Franklin Byrd, Intrusion's new CFO. Before we begin the call, I want to remind you that today's conference call may contain forward-looking statements regarding future events, including but not limited to expectations for Intrusion's future business, financial performance and goals, customer and industry adoption of Shield technology, successfully bringing the market Intrusion's design pipeline and executing on its business plan. Now, these forward-looking statements are based on estimates, judgments, current trends, and market conditions, and involve risks and uncertainties that may cause actual results that differ materially from those contained in the forward-looking statements. We encourage you to review the company's SEC filings, including the 2019 Form 10-K we filed with the SEC on March 27, 2020, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in the region. All forward-looking statements are made as of the date of this call, Thursday, February 25, 2021. And except as required by law, we do not intend to update this information. This conference call will be available for audio replay for at least 90 days in the Investor Relations section of Intrusion's website at www.intrusion.com. I will start the call off with a review of the financial results by Franklin, and then Jack will review Intrusion's recent operating developments, progress with Shield, and the company's key objectives going forward. Then we'll take your questions. And with that, I'd like to turn the call over to Franklin. Franklin, please go ahead.

Well, thank you, Joel, and thank you to everyone who's joined us today. As you know, this is my first call as the CFO, and I'm excited to be on board. I look forward to meeting with you in the coming weeks and working closely with Jack and the team during this exciting time at Intrusion. So turning to the fourth quarter 2020 results, revenue was $1.6 million compared to $1.6 million in the prior quarter and $2.6 million in the fourth quarter of 2019. Revenue for the full year 2020 was $6.6 million compared to $13.6 million in the prior year. 2020 revenue for the fourth quarter and the full year were impacted by extended government shutdowns related to the pandemic, which delayed subscription renewals and contract starts for our government business. However, as we indicated in the recent press release, we've begun to see signs of recovery on our government business, and we see those continuing to levels that we've seen historically. Additionally, 2019 revenue for the fourth quarter in the full year benefited from two one-time contracts that were unique to 2019 only. Gross margins in the fourth quarter were 58.2 percent as compared to 58.9 percent last quarter and 61 percent in the fourth quarter of 2019. For the full year of 2020, gross margin was 59.1 percent compared to 60.8 percent in 2019. Operating expenses in the fourth quarter were $4.8 million, which included a $1.1 million non-cash write-off related to a prior office lease agreement. This compares to $2.3 million last quarter and $1.3 million in the same quarter a year ago. Full year 2020 operating expenses were $10.4 million, which includes the same $1.1 million non-cash write-off just mentioned, and compares to $3.8 million in the prior year. In addition to the $1.1 million non-cash write-off in 2020, we had year-over-year increases in operating expenses for three or four primary areas. Number one, the hiring of 31 additional employees across the board for the development and launch of SHIELD. The breakdown of these hires are 20 in sales and marketing, eight in research and development, and three in general administrative areas. Additionally, we stepped up marketing efforts in the second half of 2020 in preparation of our SHIELD launch, and we increased development activities for SHIELD and future solutions offering. And to an electric extent, we had increased registration expenses related to the October stock offering and our move up to the NASDAQ. Net loss for the fourth quarter of 2020 was $3.9 million, which included the $1.1 million non-cash write-off related to the prior lease agreements. This compares to a net loss of $1.4 million for the prior quarter and net income of $0.3 million in the fourth quarter of 2019. For the full year of 2020, the net loss was $6.5 million, which also included the $1.1 million non-cash write-off from the fourth quarter, and compares the net income of $4.5 million in 2019. After the cool of preferred dividends, the net loss attributable to common shareholders in the fourth quarter was $0.23 per share on 17 million shares. compared to a net loss of $0.10 a share in the prior quarter and net income of $0.02 per diluted share in the same quarter a year ago. For the full year of 2020 after the accrual of preferred dividends, net loss attributable to common shareholders was $0.45 per share compared to net income of $0.28 per diluted share in 2019. Cash and cash equivalents as of December 31, 2020 was $16.7 million compared to $1.5 million in the prior quarter, reflecting the $18.2 million in net proceeds from our successful follow-on offering that closed in October. Working capital was $16.2 million, and total outstanding debt at the end of the quarter was $633,000, including the current portion. In terms of guidance, we will not be providing quarterly guidance on today's call. As you know, we're still in the early stages ramping up our orders on SHIELD. It's very, very difficult to accurately predict the exact timing of the revenue ramp up. However, we do want to reiterate that we're extremely encouraged by the high level of interest and the demand in such a short period of time since launching the Shield to the market. And we expect to continue the strong momentum into the coming quarters ahead. Now, I'm pleased to pass the call over to Jack to review recent business developments with Shield and several other activities in the company. Jack?