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spk00: Good afternoon and welcome to the first quarter 2021 results financial conference call. At this time, all participants are in listen only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. Today's conference call is being recorded for replay purposes. I would now like to turn the call over to Joel Akramasic of Shelton Group Investor Relations. Joel, please go ahead.
spk05: Good afternoon and welcome to Intrusion's first quarter 2021 earnings conference call. I'm Joel Akramowitz, Managing Director of Shelton Group, Intrusion's investor relations firm. Joining me are Jack Blunt, Intrusion's President and CEO, and Franklin Byrd, Intrusion's CFO. Now, 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 to market Intrusion's design pipeline, and executing on its business plan. These forward-looking statements are based on estimates, judgments, current trends, and market conditions, and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. We encourage you to review the company's SEC filings, including the 2020 Form 10-K filed with the SEC on March 9, 2021, and other SEC filings made from time to time, in which we may discuss risk factors associated with attesting an intrusion. All forward-looking statements are made as of the date of this call, Tuesday, May 4, 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. Now, we'll 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 be happy to take the questions. With that, I'd like to turn the call over now to Intrusion's CFO, Okay, Franklin Bird. Franklin, please go ahead.
spk02: Franklin Bird Well, thanks, Joel, and thanks to everyone who's joined us today. So for the first quarter, 2021 revenue was $1.9 million compared to $1.6 million in the fourth quarter of 2020 and $1.8 million in the first quarter of 2020. Revenue for the first quarter continued to reflect the impact of extended government shutdowns related to the pandemic, but we're hoping to see positive signs of a recovery as Washington begins to reopen and a more normal ordering patterns return throughout the course of the year. Gross margin in the first quarter was 66% compared with 58% last year and 58% in the first quarter of 2020. First quarter operating expenses were $5.1 million compared to $4.8 million last quarter, which included a $1.1 million non-cash write-off related to a prior office lease arrangement. This compares to operating expenses of $1.5 million in the same quarter a year ago. As mentioned in the last quarter, the increase of operating expenses is due to the additional hiring we've had to expand our sales and leadership team, combined with increased marketing focus on the development and launch of SHIELD. To drill down a little further on the additional employees, since the first quarter of last year, 2020, the company has hired 38 additional employees across the board for the development and launch of SHIELD. The breakdown of these new employees were as follows. 26 in sales and marketing, eight in research and development, and four in general administrative areas. In addition, hired employees, we've also increased our use of contract consultants for both research and development and our legacy consulting business. As I previously stated, we have continued to step up our marketing efforts in 2021, focusing on the launch of Shield. Additionally, we've experienced general expense increases, which you would normally expect when employee headcount increases. Net loss for the first quarter of 2021 was 3.9 million, or minus 22 cents per share, on 17.6 million weighted average shares, compared to a net loss of the same, 3.9 million, or minus 23 cents per share, in the prior quarter, and a net loss of 0.5 million, or minus 4 cents per share, in the first quarter of 2020. Cash and cash equivalents as of March 31st, 2021, with $13.1 million compared to $16.7 million in the prior quarter. And working capital was $12.4 million and total outstanding debt at the end of the quarter was $635,000, including the current portion. In terms of guidance, we have continued our current policy of not providing quarterly guidance at this time due to the fact that we are still in the early stages of ramping orders on SHIELD As we stated previously, it's very difficult at this stage to accurately predict the exact nature and timing of the revenue ramp, but we'll continue to reevaluate this on the quarters ahead. With that, I'm pleased to pass the call over to Jack to review recent business developments with Shield and several other activities across the company.
spk09: Jack? Thank you, Franklin. So I'm going to start off by certainly commenting on, I think, the excellent progress that we made in first quarter. because I'm certainly very pleased by it and think it's a good indication of the direction we're headed. We've had an absolute unprecedented interest in a very short period of time in the Shield product, its unique functionality, and its unique plug-and-play technology that makes it so easy to implement and evaluate. We have struck a number of contracts, most of those being three-year contracts, with some significant companies. Two of those, for example, Kimberly Clark, which we did a press release on, and LCI, which we did a press release on. Kimberly Clark's a Fortune 500 business. LCI, I believe, is a Fortune 2000 business. Both of them are international businesses with international locations, and they have signed international agreements for three years to be able to use the Shield product in all of their international locations. So that's very, very significant to the first quarter of a new launch of a new networking technology cybersecurity product. We're very, very pleased to have both companies on board. We are working very closely with both companies and very excited by the progress that we're seeing there. Having well-known brands like this certainly increases the opportunities with other companies to make additional new sales. In total, we have licensed over 50,000 seats to date with these companies. That's an extraordinary success, I think, in a very short period of time. Our pipeline continues to grow with prospects from the SMB market, from the mid-market, and certainly from large enterprise and even government agencies. I was in D.C. all last week, for example, and was very encouraged to see the streets full of cars, hotels full of patrons and business coming back to normal in the federal government. As you know, I reported last year when I was up there, I found it a very depressing place. So I was very encouraged to see business coming back to normal in the capitol. We have been performing multiple demonstrations on the Shield technology, which is very easy to demonstrate to a customer through a web session online every day of the week. We continue to have very positive feedback from those and very positive outlook for the year. Revenues, of course, will grow slowly, the SaaS model of our technology. It takes a while for that to ramp up. So from an update from the sales channel, We have 35 resellers now actively selling our product for us, and I'm proud to say some of those already are international resellers. We have three Canadian resellers, one Mexican reseller, one United Kingdom reseller, one Australian reseller, and actually one Lebanon reseller. So seven international resellers signed up in the last four weeks alone, and we're very excited about that because I believe the international market is very, very ripe for new cybersecurity technology. If you look at the international market, for example, some people may be surprised, but the four leading countries I think that you see are Mexico, Brazil, Well, I just drew a blank on the other two. But anyway, not necessarily normal where you think of coming from Brazil, and Mexico being the two largest outside of the US for cybercrime, aggressive attacks and hits on a daily basis. So we're excited to have international resellers signing up as well. We've expanded our leadership team by adding two key individuals to the team very, very recently. We originally had not planned to hire a chief sales officer until 2021, because we originally thought it would take till 2021. I mean, 2022 to become international. We got that done by the end of first quarter. And with that change, we went ahead and made the move to hire an international chief sales officer with tremendous international experience. established known resellers and businesses that he's used to working with. In addition, he brought on a new VP of direct sales, Jeremy Merrick. So Daryl Athens and Jeremy Merrick are two new executives in sales. We're very excited to have them both on the team. We had them here in Dallas recently for training, and they're out actively selling to customers today. On the traditional government business, we are seeing early signs of of growth, although there are still delays due to things that are going on in the government. For example, while I know we all hear daily on the news about the president talking about massive spending increases, sadly, we do not have an approved budget for the government, and it's not looking like the budget's going to get approved until 2022. Without an approved budget, then the government must continue in resolutions, which we've seen before in the past. The challenge with continuing resolutions is starting up new business. So ongoing projects can continue and be funded, but new projects are very hard to get approved and funded during continuing resolutions. So that may still cause some delay as we move into 2021. However, we expect to see near normal growth continue closer to the end of the year. In summary, SHIELD is in an early stage of ramping, and we're very excited about how it looks. Our pipeline is extremely large for the early stage of the company. It is significantly larger than I would say it needs to be to accomplish the goals and sales that we expect for 2021. So I believe we have a great pipeline in front of us that we're executing against. Clearly, we'll be driven to accomplish, implement new sales, which bring on new revenues. Our target for international is also an exciting change that we do not think we would have at this time. Again, Brazil, India, and Mexico being the three largest countries for the international market that are prime for ready growth. We have established resellers that we're talking with that we'll be bringing on in Brazil and India very shortly. We've already brought on a Mexican reseller and have others in the pipeline as well. So we're continuing to build market visibility for shield its unique capability of real time killing all dangerous traffic incoming and outgoing to your network. Fundamentally, I'd say the two questions I get asked most frequently when I'm doing sales pitch is why is shield producing such dramatic higher kill rate than any other cybersecurity product on the market? And the answer I give to that is shield has the advantage of using the TraceCop database that we've had for 25 years. That's the largest and most unique in the world to train our AI on. So therefore, our AI can be dramatically more enhanced and more significant. On average, we're showing about 20 times the volume of traffic that we are identifying as dangerous to your company compared to other cybersecurity products. So not only do we not generate any alerts that waste hundreds of hours of man hours by IT teams tracing them down, we are killing thousands more things than other products even identify and generate alerts on. So the community is starting to readily adapt to the Shield's nature of understanding the broad breadth of the cybersecurity brush that's sweeping across the world that's impacting business with an attack reportedly every 39 seconds on a business. With that, I would like to turn it over and open it up to your questions. And as always, we'll do our best to answer all your questions. Operator, if you could open up the call up.
spk00: Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, it's star followed by 2. Our first question comes from Zach Cummings of the Riley Securities. Your line is open. Please go ahead.
spk06: yeah hi good afternoon thanks thanks for taking my questions um i just wanted to start off by asking if you could just give us a general sense of kind of the comedy of the um contribution of the legacy business versus maybe the kind of minimal shield revenue that you were able to get in this this quarter saw a nice tick up in the gross margin line versus maybe what we saw over q4 and q1 of last year yeah hey zach this is franklin um yeah so in q1 um
spk02: virtually the majority of all of our revenue came from the legacy products. We had, as we expected and have always communicated, our shield sales in Q1 was very minimal because we just launched in Q1. So what you'll see for Q1 revenues is largely and predominantly the legacy businesses.
spk06: Understood. And then understand, I guess not wanting to provide guidance just given how early you are in the stage of this, but is there any way you can give us a sense of the number of shield seats that you have right now that are paying versus what's just signed up in the backlog?
spk09: Well, we don't have the exact number of those that are paying today versus are signed under contract. So the 50,000 seats is under contract. for Shield, but because of the SAS license, they only pay revenue online in a quarter. So initially, You know, if you have 20,000 seats, you're not turning on 20,000 seats in one quarter because you have to have IT people alerted. They have to know what's going on. Again, Kimberly Clark, for example, actually has locations in 110 different countries, and they plan to roll out worldwide. So we have not seen their implementation schedule of how they're going to get 110 countries, but we know that they're working on it. So the revenues will come in as they bring on a territory or a region, and then the revenues start paying. So the SAS model is you pay as you use. So as they ramp up and implement across the market, then we'll see more and more seats. So the 50,000 seats is what's licensed, but it's not what's being paid for daily.
spk06: Understood. And then you kind of touched on this, but with that 50,000-seat padlock, I mean, what's sort of the pace that we should anticipate for that rollout for these to go live? I know it can kind of vary customer by customer, but I'm just curious how you're thinking about it internally as you build out your plan and your model moving forward.
spk09: Well, again, we don't have enough track record to have history to understand how fast customers are going to be able to implement it. We've done everything humanly possible to make the product the easiest product to install and implement ever invented. Again, it's most customers. In fact, we had one customer that I traveled to New Orleans to sell a few weeks ago, and their concern and fear was from their IT department and not having the resources to take time to learn a new product and implement it. I literally showed up at the meeting, walked into the data center with the CEO and his entire team, installed the Shield product, and had it active in three minutes, timed on a stopwatch. It was in production, in use. So we've done everything humanly possible, but how fast customers roll out products is all about their customers. They don't have to give us a plan of when they're rolling out which ones. We know when they come online, and that's when they start paying for them. So, you know, I would anticipate that they'll bring on, you know, some number of seats each month, but I don't know at what rate, and we don't have enough history to look back and say. They could turn it all on in three weeks. They could turn it all on literally in a day if they wanted to. But most companies don't operate that way. They go by location. They roll things out in a physical location at a time. Now, they probably will roll out an entire location at a time, which could easily be 1,000 seats coming on at once. It could be 300 seats. We just really don't have any data, Zach, to be able to determine that. We don't control it. The customer controls it. So I'd like to give you answers, but I just don't have enough data. I would be purely guessing, and I don't know that.
spk06: Understood. And then I guess just a final question for you in terms of Kimberly Clark. I mean, how that contract is structured, I mean, just depending on the number of seats, are there requirements where they have to fill those seats over a certain time frame? I'm just curious if it just gives them the option to make a certain number of seats go live or there's some sort of contractual obligation that requires them to roll this out and actually begin to pay for it.
spk09: Certainly there's the intent and the desire that Kimberly Clark will be rolled out fully within 12 months from the very first discussions I've had with them. I have not seen a schedule, and there is not technically anything in our contract that requires them to implement it. in a certain time frame. So I know they have some seats implemented already. In fact, they had some seats implemented at the time of the press release. I know they're rolling out more aggressively, but I haven't seen their schedule. So I certainly anticipate that they will have all of their seats online within 12 months. I would expect probably more like six months. But again, I don't have the history to prove that. I mean, clearly they didn't buy this to set it on the shelf. They buy this because they're scared to death of cybercrime, and it's only helping you if you get it implemented. So they have every desire to implement it. I don't want to spend the money because it's very inexpensive versus what they're paying for other products and the risk they have if they get hit. So I know they plan to be very aggressive at rolling it out, and I think most customers will be.
spk06: Understood. And then I guess just a final question for me would be around kind of all the hiring that you've done over the past couple of quarters. Do you feel like you really have kind of the team in place right now for the expected demand for Shield, or how should we think about the ramp with operating expenses over the next couple of quarters?
spk09: No, we have said I think a couple of times that we think that we have filled – the critical positions we have in the company, the sales force, the technical support people, the quality assurance people, all the things that go along with shipping a production product. So we feel like our headcount is largely stable right now. I'm sure we'll be hiring two or three people a month or a quarter, but we don't have any aggressive hiring plans until we see what the implementation ramp is and where additional people are needed. So as we said before, we think we're pretty stable at about the headcount we are right now. To get us through second quarter, we'll evaluate right now. We have plans for a board meeting right around the end of second quarter to evaluate with the board what we've accomplished in sales and revenues and whether it's time to re-engage in new hires or whether we're going to stay stable for another quarter. So it'll be evaluated each quarter.
spk06: Understood. Well, thanks for taking my questions, and best of luck going forward.
spk09: Thank you very much. Thanks, Zach.
spk00: Our next question comes from Scott Buck of HC Wainwright. Your line is open. Please go ahead.
spk04: Hi. Good afternoon, guys. First one for me, kind of piggybacking on Zach's question, outside of personnel, is there any other investment you need to make to feel like you have the infrastructure in place to properly roll this out?
spk09: No, we have no major infrastructure enhancements planned. Our data center is stable in place and at adequate capacity. So we don't have any anticipated expense that will drive anything new right now.
spk04: Okay, that's great, Jack. Thank you. Second one, can you remind us the difference in economics between selling directly through your Salesforce and using the reseller channel?
spk09: Well, to the reseller channel makes 30% off of our product, which is basically how most of these evaluate internal costs of direct sales versus channel sales. So while one may sound more expensive or more profitable than the other one, both of them basically cost you about 30% to close sales, whether you're doing it through a direct sales force or whether you're doing it through a channel sales force. So that's pretty much an industry average number. That's how we get to it, and that's how they compare.
spk04: All right, that's perfect. Thanks a lot, guys.
spk09: Appreciate it. Thank you. Thanks, Scott.
spk00: Our next question comes from Russ Taylor of ARS Investment Partners. Your line is open. Please go ahead.
spk03: Thank you. Jack, on the last call, you talked about a number of large and potentially very large prospects that you were in the demo stage or trialing stage. Could you update us on where those potential customers stand?
spk09: Well, certainly LCI and Kimberly Clark were two of those. Again, both of those are very large, you know, dollar companies. As I said, I think LCI is in the Fortune 2000 category. I know Kimberly Clark is in the Fortune 500. I think they're Fortune 330 or something. So those are certainly two of the companies that had early access to the product, did early evaluations that I was alluding to during that call. Kimberly Clark being... Certainly, I mean, we talk about it a lot, but to win a Fortune 500 company at this early stage of a new technology is almost beyond my excitement. The work that they put in to evaluate technology, the impact it has on their company, again, looking at rolling it out in 110 different countries, I mean, this is a major, major enterprise decision, and they don't make those lightly. So we feel like this is about as good of a rubber stamp as you can get that says certified, ready for production. So we're very proud of that. There are others in the works, and it was not just two. These moved the fastest. Fortune 500, Fortune 100 companies, government agencies generally take nine to 12 months to make a decision on a new networking technology. I mean, pretty much anybody in the industry will tell you that. I've been selling... enterprise solutions for 42 years. I can tell you it's always, in fact, in the earlier days that we used to say it was 12 to 18 months. Now we say 9 to 12 months. So some of these big companies will take longer, both to make the decision to put it in evaluation mode, how long they want to evaluate it. But we, you know, we are in discussions with other Fortune 100, Fortune 500 and government entities that are very large and very significant that we're very excited about and that I will continue with my team to work closely on.
spk03: With regard to the government agencies, are they seeing this as something that they would be putting into place in replacement of services you currently sell them, or would this be additional and for different uses than the work you're currently doing or the historic work you've done with them?
spk09: No, it's absolutely new and additional work. So this is really, again, I think I said earlier in the call, I was in D.C. all last week specifically to work with government agencies It was really my first time that I've been able to go up there and meet with them and give them demos of Shield and talk about the new functionality and how it works and how I think it's so, again, formerly being a CIO in the federal government, I know a lot about what their needs are, and so I know a lot about how to sell to them. So this is additional. It will not displace any of the current work that we do for them. But it's an additional that they would be rolling out to large agencies to all of their employees and their organizations to protect them. So I got an incredibly warm reception all last week in D.C. The demos were as well received by the government as they have been by any company I've shown. We have follow-up meetings with every one of these agencies in the coming weeks and months. So I am, again, extremely excited about how rapidly, how openly they accepted the SHIELD technology. They absolutely loved the concept of killing things rather than generating alerts. They all had their own military analogies to the fact that being protected, instead of reporting that you had been hurt after the fact, was a radical departure and something that they saw endless value out of.
spk03: Okay, and so in looking at all this, and you made the comment that, Cassie, Kimberly-Clark was, by you, seen as effectively a proof of concept that, you know, the market, there's a lot of uncertainty. Clearly, the recent price action in the stock market has indicated that there are a lot of people who don't have the confidence in this product that you have and that your team has. So can you comment on why this proof of concept was so important? Because obviously you've seen a lot of action that indicates that people don't believe that it means anything.
spk09: Well, I wouldn't agree with that statement. I think everybody knows they need better cybersecurity. I think everybody feels vulnerable. Every article I read, every conference I go to, I never hear anybody say they don't need anything. Now, not having the confidence in Intrusion Shield, given the fact that it's such a new product out of a new company in a sense that we're a turnaround because we've never had a commercial product, I certainly understand their hesitancy on that front. And I think it's normal. But, again... traditionally if you buy like a firewall you're going to spend weeks to months configuring it then you're going to put it on your network and then you're going to spend months evaluating did it really help me and how is it better and how do i know it's better so these are traditionally solutions that take long periods of time to evaluate shield on the other hand installs in two to three minutes and start network immediately Most of the time when I do a demo, we kill from 10 to 20 to 30 malware attacks during a 15 or 20 or 30-minute demo to the customer. So they real-time can see the benefit of this product. Again, if they typically run a month-long evaluation, they're going to find that we've killed over a million connections on their network that they didn't even know were going on. that weren't useful, that weren't helping their employees, that weren't constructive, that could only have bad intentions, that none of their other products were even generating alerts on. So the value of Shield is so dramatic that I believe the market is going to adapt it very, very quickly. And I think that's why I'm so excited about a company of the stature and size and speed, generally, lack of speed, of a Fortune 100 company. to move, step forward, and step up to the plate and say, we want this protection in all of our locations around the world. I think that really proves what I'm excited about and what I think every customer sees when I demo the product.
spk03: Can you give us a little bit more color about your database and what makes it so unique? I know that there have been indications and some people on the market have indicated they believe it's just off-the-shelf data. Our efforts indicated to us that it's actually – almost what I would call forensic data, not being a technical specialist. But can you go into more of your database and why no one else has that capability?
spk09: Sure. So, you know, you have to attribute this back to Ward Paxton, Ph.D., that founded this company 37 years ago, launched several unique products in several markets, fiber optics, firewalls, et cetera. He's a brilliant man. When the Internet launched, he envisioned the fact that tracking Internet traffic would be the forensics that you need to really know what's going on in the world. So he set up and started a database 25 years ago to track international traffic, connections from all points A to B around the world on the Internet, real time, the forensics, who's talking to what, what kind of data are they sending, what is their ip address what is their url etc etc etc so they started tracking this information and for a long time i know don't think they really had a plan of what they were tracking it for but except that that ward had a vision that that data would become valuable well after a few years and they started getting all these government contracts to do forensics work, they found that the only way they could solve these problems the government was bringing them was to do research in this TraceCop database that they had been building that nobody else in the world had because nobody realized that tracking the information was important. So we've spent the last 20, 25 years doing forensic work for the DOD on cyber breaches that they can't figure out on their own. That's why they hire us as consultants. to engineer them and figure them out. And the only way we can figure them out is by using the TraceCop database. And so much of that is actually done based on historical relationships and connections. So while you may think something that happened 15 years ago on the internet isn't relevant, our research shows that about 70% of the time that we determine something to be evil or malware in nature, It's based on historical information that's in the TraceCop database because all of these sites are constantly changing their IP addresses. They're constantly changing their URLs. They're constantly trying to disguise themselves as innocent and new and safe and clean. And it's only through having that historical information that you can trace back and say, no, this is really China Joe doing this evil thing again. So the reason that our database is so much valuable is because, one, it's huge. It's petabytes upon petabytes of data. Two, it's 25 years of all connectivity history on the Internet. I do not believe another database exists in the world like it. When I was in the government as a CIO, I put a bid out to buy a database that had more than 10 years of history, and no vendor could provide me such a database. So they never could collect data. on the money so i believe this database is truly unique again if you have to understand how ai works to understand why that's so valuable and most people really don't understand ai much at all if you give ai a small amount of data it's going to either tell you nothing or it's going to tell you something wrong ai can only learn out of massive amounts of data So I worked on a project to solve diabetic blindness, for example, a few years back. The doctors from all over the world that were involved in that project didn't have a clue what caused diabetic blindness, but we had data from hospitals all around the world that we created a massive data light, and then we wrote some AI algorithms that looked at the data And the data came back and said, this is what causes diabetic blindness. 30 years of research couldn't figure it out. A few weeks of research with AI came back and said, this is what causes it, and this is how to cure it. America now says diabetic blindness is 98% cured. That's because you have to have the massive history of data. Look at a Tesla car. Go talk to anybody at Tesla about how your Tesla car can make a decision of whether to change lanes or whether to turn or how you have driverless taxis in Phoenix right now. I just rode in one a few weeks ago. It's a little bit scary, but driverless taxis. It has to make millions of decisions every second of the day, and it does that off of studying historical data about driving patterns. So that's why the TraceCop database is so incredible. You look at the rest of the world, they will tell you there's about 500,000 known malware active sites on the Internet today. When we pointed our eye at the TraceCop database, we thought like everybody else, there's 500,000 of them. Well, the AI came back and said there's 3.4 billion active malware sites on the Internet today. That's one-third of all Internet connections. And it can tell you the IP address of every one of them. So we're not just protecting you from 500,000 signatures. We're protecting you from 3.4 billion bad actors every second of every day. We could only know that. There's no way to know that. There's nobody on the planet that can prove that number because nobody else has our database. But that's a documented database of dangerous identified IP addresses. That's what makes Shields so different. That's why our TraceStop database is so proprietary and valuable to this company. Does that answer it?
spk03: Yeah, I think it actually does. And I'm going to leave you with one last, it's not a question, but it's a request. By our calculations, when you get to kind of full run with a spec, each 50,000 seats you generate is probably worth about $4 or $5 a share in value. I don't need you to come out and tell me every time you win a big contract, but what I'd love is in these early days to show to the market that you're getting traction and you let us know at various important benchmarks, like when you've talked about being over 50,000 seats. When you get to 100,000 seats, you can let us know. When you get to 150, 200, because it seems right now that this is something I learned long ago, is that I don't necessarily have to know how a product works, but I know that if the right people and the smart people are buying it and using it, then it probably does work. And it seems to me that right now the proof of concept here is really going to be showing the market that there are people out there who actually know more than they do about these issues that are making the choice to use this product. And as I said, the leverage by our model is huge. And I would welcome that kind of information as affirmation.
spk09: Thank you for that comment. I agree with you completely. We will absolutely keep the market appraised. of our seat count as it grows. As I've said, we won't be able to do every product, I mean, every release to every customer, because a lot of them won't allow it. But again, we had two large ones, which were huge. We certainly can give you a seat count, even if we can't give you customer names. And I think to let the market know every time we add another 50,000 seats is a very reasonable thing, and we will be delighted to do that. And You know, I'm going to be excited, as you are, to watch that number grow because, again, that proves the value that I'm bringing to the market to help stop the horrendous cybercrime problem the world is facing.
spk03: Yeah, I would agree with you, and I thank you very much for the great response. Take care.
spk02: Thanks, Ross.
spk00: Our next question comes from Howard Brous of Wellington Shields. Your line is open. Please go ahead.
spk01: Jack, in several past calls, you talked about that Shield prevented solar winds. Can you describe how that's possible? Certainly. And how you're able to find that out? Please, go ahead.
spk09: So you have to understand how Shield works a little bit. So unlike most cybersecurity products, we don't use signatures. So Let's back up a little bit. SolarWinds was what's called a zero-day attack. What that really means is it's a new attack with an unknown signature, so therefore no cybersecurity product can identify it and stop it, and therefore it's going to breach networks until somebody identifies it and starts knowing how to look for it. That's what a zero-day attack means. So when the SolarWinds attack was being launched, it was an unknown thing, So therefore, it appeared as harmless to everybody's network security and therefore got on a lot of networks. The way we work is we identify even zero-day attacks by using artificial intelligence, this massive trace cop database, to understand patterns related to traffic that suggest it's malware even without knowing what it is. So how did we identify and kill SolarWinds? because of our AI identified the patterns of these attacks and said, this looks like evil stuff to us. We're going to kill it and not let it happen. Well, we write that in our database. So at the time we were doing this last August, September, we didn't know that was solar winds because solar winds hadn't even been identified yet. But we were seeing things we thought were evil that we were killing. Well, once solar winds became public, They identified the signatures. They published them on the Internet, and everybody could go start looking on their network and trying to clean it off their network. We went back and looked in our database and said, yes, we were killing those attacks back in June, September, August, before anybody knew what they were. So we didn't know that we were killing SolarWinds, but we knew we were killing a new unknown attack. That's how we stopped. soft exchange attack recently after solar winds again we were killing that attack when it came in as a zero-day attack because our ai can identify the patterns to say this is not good therefore we're going to kill it because it's not good killing it didn't hurt anybody because nobody knew it ever been killed and it's in our database we didn't know it was the microsoft exchange thing because we didn't know what the microsoft exchange thing was last year. But in March, once it became public what it was, we could look at our database and say, yes, we killed thousands of times the Microsoft Exchange attack, the SolarWinds attack. So that's how we can kill even zero-day attacks before anybody knows what they are, and we can prove we did it because it's recorded in our database the time and date and the number of times and the occurrences that it was attacking. Does that make sense?
spk01: Makes a lot of sense. So I thought it was very continuing, but no question makes absolute sense. Um, for years, inclusion for trace cop and, uh, savant has been a sole source supplier to the department of defense. He's indicated on this call and others that business slowly for the legacy business is getting better, but I want to address certainly the department of defense and one of agriculture. Talk with me about the opportunity there. One in terms of number of seats and where you stand in terms of testing.
spk09: Well, um, yes. Uh, I was visiting with organizations in the DOD. I was visiting with organizations in USDA. I was visiting with organizations and treasury. I was visiting with a number of organizations in the United States government last week. Uh, I was very busy. Again, it was good to see the government back to work, trust me. The reception I had was fabulous. It was incredibly positive. A lot of questions, a lot of doubt and uncertainty because what we do is radically different to what other products do. But, you know, I believe that they are more aware than ever that they are exposed and vulnerable, and that the products they have aren't working. SolarWinds and the exchange breach, just to name two of them that the public's aware of, proved to the federal government that they are not secure. Both of those attacks breached multiple government agencies and hundreds of thousands of employees. So they're very upset about it. President Biden just announced that he is working on a new bill to dramatically change the requirements on the federal government for their cybersecurity defenses because he believes what they've been doing is inadequate. We met with people who are aware of that bill. that we wanted to make them aware of what SHIELD is, how it would make the government safe, and we are trying constantly to get more exposure in the federal government to understand how SHIELD works and how we can help them solve their problem. So the government is very, very serious and aware of the cyber crime threat. and that they are not doing enough to stop it, and that current cybersecurity products are not protecting them. So we believe that creates an absolutely garden opportunity for Shield to come in as a unique, patented AI technology that can add a new level of safety to their network. USDA, for example, has 110,000 seats. to know when you ask about seats. Since I used to be their CIO, I can answer that question. They have 110,000 seats. It's a pretty big implementation.
spk01: You said that, talked about the public aware of specifically SolarWinds and Microsoft Exchange. Are there others that the public is not aware of that you can comment on?
spk09: Well, there are certainly others. that I could comment on if I had to listen from me. I mean, there are major breaches announced every day. And, you know, different countries get hit with different breaches at different times. I get reports from around the world right now. You know, I have a lady in India. that's working on that part of the world and gives me reports every day. So there are breaches every day. We're going to add a section to our website very soon where we are the centralized site for learning about more breaches readily, and we're going to be promoting that very heavily. I can tell you that I talked with government agencies, because I do have top-secret security clearance, when I was in D.C. last week, about other breaches that have occurred that I can't tell you about on this call. So there are more than just the solar winds and the exchange that have hit government agencies in the past few months alone. Again, the government is very seriously concerned. When the president starts talking about a bill specifically for cybercrime, I think it tells you how alarmed the federal government is right now.
spk01: Jack, thank you. Best of luck.
spk09: Thank you very much, Howard. Appreciate it.
spk01: Always a pleasure.
spk00: Our next question comes from Russell Cleveland of Wren Capital. Your line is open. Please go ahead.
spk08: Thanks for the call. Appreciate all the information. My question is around the beta testing. It seemed like that, you know, our plug-in service, you know, it doesn't take months of testing. So can you tell me more about the beta testing and, again, the characteristics of the companies you mentioned there? earlier that there were companies similar to Kimberly-Clark and that kind of size. And, of course, the government is very exciting. But tell me about the tests they have to do here and the timing on all this. Any thoughts there?
spk09: Certainly. Well, just to be clear, terminology varies. Beta means to me and generally to the industry a pre-release product. So our beta testing was only being done prior to the shield going into launch in general production now we do evaluation systems so they're not technically beta systems but it sounds like you're really talking about evaluation systems so we are shipping evaluations comes out every week to various customers of various sizes again the product is remarkable one of the things i'm nominally most proud of because of all the pain and agony I've had as an IT professional in the industry for 40 years, learning and installing new security products on networks is a horrible, horrible task. And so when I helped the team here design Shield, I told them this had to be a revolutionary plug-and-play product because IT is already overwhelmed. They don't have the time to evaluate technology. So we have patented the process of how we do plug and play on such complex software. There's normally hundreds of parameters you have to set in a network type appliance to even get it to become active. Shield plugs in, identifies its network, and begins protecting you two minutes after you turn it on. So we can do very rapid implementations and evaluations. One example, probably the best I have so far, is the one I mentioned. I flew to New Orleans to meet with a company where I was friends with the CEO, but this IT staff did not believe they needed SHIELD. They thought they had the basis covered. They didn't need yet another layer of cybersecurity, and they didn't have the time, and they didn't want to evaluate it. But he was worried enough about ransomware and breaches of other companies like his that he invited me out to try and convince his IT department. We had a meeting in a conference room with all of his IT professionals and the CEO of the company. We installed Shield. It took three minutes. We turned it on, and we sat there as a group in the meeting watching Shield kill things that were living on his network that he didn't know were there. They bought the product the same day. It's in production at their company now. IT, they had a loaner. I told them it was an evaluation product. I came down. When I got ready to leave, I kind of jokingly said, you know, I can take the system back with me. We don't have to leave it here if you don't want to do an evaluation. And the CIO looked at me and said, you're never getting that appliance out of my network. He says, I'll sign the contract today. So that's how fast it can go. And typically what I'm seeing is about 30 days. So not the six to nine months of companies or traditional products, but about 30 days. They want to put the product on their network. They want to evaluate it. And it seems like most of them call me after they get that first 30-day report. So Shield prints out a report at the end of 30 days telling you how many connections it killed to keep your network safe. And that number is typically over a million connections in one month. At that point, no CFOs turn the product off. So in a month, they know it hasn't interfered with any of the work their employees were doing. So it's not killing things that they need. It's not slowing them down. They don't even see it happening. But it is killing a million things, and that tells them there's a million things that were on their network that could only have ill intention. Something doesn't live on your network because it doesn't have any place else to live. It's there for a reason. It's there to find a way to hurt you. So it's very, very compelling. Quickly, a prospect can go to becoming a customer because of how quickly SHIELD proves its value to a customer. Does that answer your question?
spk08: Yeah, so the challenge here is not so much time because it's proven very quickly. It's just legal and board approvals and corporate bureaucracy, not testing and getting the product into the market.
spk09: You're right. I would say we spend more time up front with the CFOs. or the CIO around administrative and legal things than we do around actually evaluating the product. The product proves itself almost automatically.
spk08: Okay, that's the answer to my question. I appreciate it. Thanks again for the call.
spk09: Thank you very much. That was a great question. I appreciate that.
spk00: Our next question comes from Joe Bruno, a private investor. Your line is open. Please go ahead.
spk07: Thank you for taking my call. My history with your company goes back to, I believe it was 1995, possibly 96. A long time ago, I discovered the company while doing research, as far as technical research. Then I learned about the technology industry. And it kind of had me hooked. I ended up investing quite a bit of my clients' portfolios into ODSI. And I had very good relationships with, at the time, with Ward and Joe Head, the investor relations man. I think his name was Gordon. Anyway... Finally, something that I heard 25 years ago from Ward directly when he told me he was building a database, I just heard the results of it 25 years later. And I'm looking at aftermarket trading, and markets are just a wonderful place, you know, the way it does that. They look at numbers, and they don't look at the future. Anyway, I'm a new investor in IMTZ. And anyway, I just wanted to kind of affirm the fact that things I heard 25 years ago now have a 25 year track record, especially a trace cop. I believe it was called proto cop in the beginning. And yeah, and I mean, I was there. Go ahead.
spk09: Thank you. I wasn't I wasn't here that long ago, so I can't attest to that. Only you can. Joe Head, who you mentioned, was Ward's founder. Joe Head is still here, a senior vice president of the company. He's my most valued ally and resource in the company. His knowledge on cybercrime and forensics activity is some of the top in the world, and Joe is just a pleasure to work with. I've enjoyed him ever since the first day I met him here, and certainly he is the person that can talk to and attest to why he and Ward started the TraceCop database and how valuable he's watched it grow to be over the past 25 years. So thank you so much for that very kind comment. That was very kind of you.
spk07: One other thing, I just want the people listening to understand, I believe this company is one of the, if not the pioneer in cybersecurity. You were looking at hackers back before there was a cybersecurity law. And, uh, and I believe this company had something to do with that law being, uh, going into, into effect. Um, and I'm sure Joe has a lot of really stories.
spk09: Um, but Joe, Joe, this company has been a pioneer in cybersecurity forensics work for, for 25 years. There's no doubt about it. Um, I heard firsthand from a couple of very senior, in fact, one of the guys is retiring next month. I don't know how old he is. So he knows Joe back from when Joe first called on him 25 years ago. And he was commenting on some of the amazing things that Intrusion has done for them over the years. So they believe that we are a pioneer, and they certainly believe and were excited in the new Intrusion Shield products. as a revolutionary game changer. And that's the way I feel about it. I'm very, very proud to be here working on this product. And I really believe we can help businesses around the world. Thank you.
spk07: Thank you very much for your time, Eugene.
spk00: We have no further questions at this time, so I will hand the call back over to Jack.
spk09: Well, thank you very much for coordinating that. This was very good set of questions. We appreciate those very much. We always like talking to our investors and I just like to make a couple of last comments. This company is the closest thing to a family I've seen out of any business I've ever worked at. I really enjoy working here and I want to put a shout out to all of the employees of Intrusion for their hard work, their dedication and their excitement. and their zealousness about stopping cybercrime. I think they're doing a great job for America, and I'm really, really proud to be here to be working with them. We are doing some upcoming things that you may want to be aware of. There is an annual shareholders meeting May 18th. There is a Needham TMT conference on May 19th that I'll be participating in. And very exciting, Black Hat Security Conference. July 31st through August 5th is going to be live and in person this year. And we are a senior sponsor in that event. And we are very excited about the exposure we're going to get, the exposure the market's going to get to what Shield really has to offer. in that set of highly technical audience. So I know you're going to want to participate in that if you can. Thank you so much. Have a wonderful evening. Goodbye.
spk00: Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
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