Intrusion Inc.

Q4 2022 Earnings Conference Call


spk_0: welcome to intrusion eggs fourth quarter and full year twenty twenty two earnings conference call and webcast at this time all participant lines are in a listen only mode for those of you participating in the conference call there will be an opportunity for you to ask questions at the end of today's prepared or comments please note of conference is being recorded an audio replay of the conference will be available on the company's website within a few hours after this call i would knowledge turn the call over to sam cohen with alpha investor relations
spk_1: date you and welcome joining me today or tony scott chief executive that there and kimberly pinson feet by natural prefer the cold be webcast i will be archived on the investor relations section of our website before at your local agree totally i'd like to remind everyone that statements made during the conference call relating to the company expected future performance teacher business prospects future events or plan may include forward looking statements as defined under the private securities litigation form acted ninety ninety five please refer to her as the filings for more information that that risk factors that could cause our actual results to differ materially from the projection described in today's conference call any forward looking statements that we make on this color based on information that we believe the today and we undertake no obligation to update the statements as a result of new permission or future events in addition to us gap reporting we report certain financial measures that do not conform to generally accepted accounting principles during the call we may you know get measures we believe it is useful to investors or we believe will have been there through better understand our performance of didn't struggle with that let me not to in the call over tony for a few opening or
spk_2: march
spk_1: thank you sam good afternoon thank you all for joining us today
spk_2: in today's call i'll cover or two for results as well as talk about to use your performance the think that longer term perspective as useful to understand our long term goals and objectives a fourth quarter top lines old did not live up to our expectations however for the full year intrusion improved it's overall performance or nearly every standard method to have been important your long dirty where we made significant progress along our financial operational and strategic objectives i'll talk more about those accomplishments later total revenues for the fourth quarter one point four million a decrease of point two million to thirty fourth quarter of twenty twenty one decrease of point eight million from que three she'll revenues for the fourth quarter will point three million which was flat sequentially a point two million compared to the fourth quarter twenty twenty one this was disappointing but understandable we take him in the context of the broader macro economic landscape we release the cloud in point too late in the third quarter and didn't expect any meaningful contribution to our revenue to for twenty twenty two on a positive note it just remaining storm for the shield to him move products were several larger deals that we didn't get across the finish line in you for remaining and are qualified by blood or consulting business was relatively flat to the first three quarters of twenty twenty two someone is expected however during the fourth quarter the business experience still year over year revenue decline a point four million to the was a single contract intrusions prime time to sponsor experience leadership changes and subsequently chose not to renew the final option your reply interact with been in place and twenty team the to use gross margin on his contract was forty percent and as a result the last of this revenue fell significantly impacting the top line and a marginal impact and profitability our team is working hard to replace our moon twenty twenty three and we do expect growth over the course of the year as a result of a reseller partnerships or business development efforts in referrals from our business advisory board while the fourth quarter results were not is respected intrusion improved it's overall financial performance and nearly every standard financial murdered during f y twenty two total revenue for for your group seven point five million or three percent increase compared to twenty twenty one a gross margin improved from fifty to fifty five percent and earnings per share improve twenty three cents do a lot of eighty two sides reflecting improvement of twenty two percent compared to twenty twenty one notably intrusion shields and to do sixty percent up for your revenue in twenty twenty two up from just seven percent in twenty twenty one does we've discussed we fully expect shield to become a significantly larger portion of our revenue as we move forward a good step back and look at the full year in what has been my first year ceo we have a lot to be proud of his an organization we've made great strides in standing up the organization rounding out the management team to include symptoms and christie's which was mendell dog alaska's who joined or city own sounded your head in our meeting technical team to set the stage to ensure intrusion is properly positioned to capitalize on the significant opportunities in the ever changing cyber security space in short twenty twenty two was an important year where we teed most of our objectives for the business and made significant progress on our longer term financial operational in strategic goals let me touch a bit more in our progress and the promising market trends during twenty twenty two a number of plotted milestones were achieved earlier near we recognize that there were some performance and reliability issues with our shield i'm from a solution we move swiftly to successfully increases the nobody and performance of the shield appliance while improving your well and with it and servers in addition we realize the need to expand dark shield product offerings beyond the on promise hardware wise to both our capabilities easier to demo and to increase our ability to cover workloads in the cloud and to provide shield protection to boy devices the indications of interested pipeline expansion as a result of or shield cloud and and point products are encouraging couple of data points to help you understand what we're saying we have twenty active poodle value engagements currently under qualified pipeline is known five x from you for twenty twenty two levels including the pipeline from our resellers we continue to be encouraged by the response from or channel partners for the whole suite of our products as you may have noticed earlier this week we announced the availability of intrusion shield mobile version one point though in the google play store this is yet another opportunity for us to expose intrusion shields capability to a wider audience and make it easier to understand our value especially for protecting an increasingly mobile first platform the both businesses and consumers are moving to we have great confidence in these new products in excited to have the full suite available for the entirety of twenty twenty three and beyond from a sales and marketing perspective we took several measures to simplify and focus or messaging and shifted toward a more channel driven sales structure to better align with shield growth opportunities we made significant positive changes to our company and product grandly or logos a messaging in our marketing communications would you have all been well received by our partners and customers in addition we have enhanced or messaging so that we can clearly articulate the value proposition of our products recently a report published by cancellation research highlighted intrusions pioneering of a new aspect of cyber security technology the constellation is called applied threat intelligence the key message of this report highlights intrusions technology approach would your powers organization to take a more comprehensive view of their network examining it's for history and i'm going behavior to determine what is safe and what is a threat report is available on our website for those who are interested the revamping of our messaging around shield and the launch of our new website it's helped us better communicate to potential buyers the uniqueness of our new in in he had sweep of products and solutions in the fourth quarter we announced a partnership with the tech solutions and i t services firm based in washington dc but weaker to reach in poor countries and for us states we've been able to expand our region providing protection to public sector organisations who managing their critical eye to infrastructures
spk_1: additionally as we now since february we're partnering with garros sought to help protect it's public sector customers the brush federal state and local government agencies and education and healthcare markets
spk_2: but care of sauce deep industry expertise in broad customer base we can provide intrusion shield products to help protect their customers critical infrastructure from virtual attackers we have long been a trusted partner of the federal government and this partnership will expand our reach in the public sector as well in twenty twenty two in total we announced five new partners which expands or reaches we provide intrusion shield protection to greater number of customers in the quarters to come i would also like to comment our efforts to improve the company's financial discipline and stability as we advance upon our strategic initiatives we continue to prior guys the most suitable actions against our goal of raising fifteen to twenty million and twenty twenty three while we operate in the challenging backdrop admits that difficult interest rate and macro economic environment we feel they're strong interest from the investment community in intrusions growth strategy in value proposition we believe twenty twenty three will be a key building year for intruding we have overcome several of the key hurdles for the company stood up the organization and set ourselves up with a clear plan forward to achieve our objectives we've retired the majority of illegal over we started with and twenty twenty two and of create a best in class organization with the top people in the field as recognized by our twenty twenty two best places to work designation we continue to be the channel is a force multiplier and we have strong partners in place to avoid we've highlighted in this call we greatly expanded our reach boat in the us and internationally to get into his shield in front of potential customers
spk_1: long term the demand backdrop for are solutions continues to grow specifically in the market some segments we serve
spk_2: what i believe and continue to have confirmed from partners and customers is that are unrivaled threat intelligence dataset provide the needed additional layer of protection within an advanced comprehensive sweden cyber security products as we've yet to see the marketed option of our unrivaled intrusion shield products there will be a dramatic pause and shift in the directory of growth and margin profile this business and a go forward basis twenty twenty two as a year of investment tactical change and improvement for our organization to ensure that we are well positioned for the future ahead all of the actions we have taken under the surface and twenty twenty two such as product development sales and marketing partnership and and financial management created momentum and a clear path forward as we look forward to twenty twenty three and beyond
spk_3: now with that said of my to turn a call over again for a detailed review of our fourth quarter financials gem thanks tony
spk_4: we continue to benefit from the increased focus and intensity and cyber security solutions and expect our results going forward to reflect the strong demand from customers and channel partners for intrusion tweet a products we expect that going forward be a products as well as the advancements made to our existing shield on premise solution loci the transformation into a recurring revenue high margin and software focus business model supported by the stability of are consulting business
spk_3: i would now like to discuss our financial performance for the quarter and full year period ended december thirty one twenty twenty two revenue for the fourth quarter of twenty twenty two or one point four million a decrease of point seven million sequentially and point four million year over year
spk_4: revenue were seven point five million for the full year ended december thirty one twenty twenty two and increase of point three million compared to twenty twenty one fourth quarter revenue for are consulting business where one point one million a decrease of twenty five percent year over year
spk_1: can't forty percent sequentially
spk_4: four here twenty twenty two revenues were consulting business where six point four million a degree of point four million or six percent year over year at tony's david earlier to decline in our consulting revenue is due to a lot like a token contract and the fourth quarter that contract represented almost two point six million in annual revenues
spk_3: fortunately this contract carried a lower margin profile so the impact on our bottom line with not as pronounced however we do expect consulting revenues and twenty twenty three to increase as a result of our ongoing business development efforts
spk_4: shield revenue for the three and twelve months ended december thirty first twenty twenty two totaled point three million and one point two million representing twenty two percent and sixteen percent of total revenues respectively in comparison the prior year period shield revenues increased point two million for the quarter and point seven million for the full year
spk_3: coach representing a year over year increase of one hundred and twenty four percent
spk_4: during the quarter we find several new customers which mitigated the effects of a lot cut tomorrow he chose not to renew similar to the charlie experience last quarter this with another kid shield doctor and the solution would never fully deployed we have taken steps to proactively monitor customer utilization of show products can prove retention and reduce turnover the gross profit margin with sixty three percent for the fourth quarter of twenty twenty two compared to fifty percent in the fourth quarter of twenty twenty one the gross profit margin was fifty five percent for the full year ended december thirty one twenty twenty two compared to fifty percent and twenty twenty one the improved margin
spk_3: in both the current quarter and full year as a result of our product mix with shield cells representing a higher percentage of revenue and the lack of the low margin consulting contract as previously mentioned we are continuing to control our cost structure while also making prudent investment and our long term profitable brother
spk_4: operating expenses in the fourth quarter of twenty twenty two were five point four million an increase from four point seven million in the comparable quarter of last year operating expenses were twenty point five million for the full year ended december thirty one twenty twenty two a decrease from twenty three point two million and twenty twenty one the net loss for the fourth quarter at twenty twenty two was five point two million or twenty five cents per share compared to a lot of three point eight million or twenty cents per share for the fourth quarter of twenty twenty one
spk_3: the net loss was sixteen point two million or eighty two cents per share for the full year ended december thirty one twenty twenty two compared to a loss at eighteen point eight million or a dollar five cents per share and twenty twenty one
spk_4: turning to the balance sheet on december thirty first we had cash and cash equivalents of three million down from four point one million in the prior year in january of this year we amended our get agreement with street or bell whereby street or bill agree to waive the right to principal redemptions through march thirty first additionally and february we entered into a note purchase agreement with street or bill and the amount of one point four million and a related security agreement whereby intrusion grant granted the security interest in the employee retention tax credit due to the company under the care act more information relating to these agreements is available on our current reports and form ha both the amendment to the existing agreement and the new note purchase agreement were entered into in order to provide a longer run way to secure financing on terms acceptable to the company we need to raise additional funding in the near term to continue operations
spk_3: we estimate we need between fifteen to twenty million dollars for the full year twenty twenty three defend our growth plan and financial commitments
spk_4: we intend to obtain these funds from sales were common stock three registered direct offerings and the use of our aftermarket program while there can be no assurance that we will be able to raise the capital necessary could fund our plan we remain confident that the capital markets remain open to us for future rounds of funding
spk_2: with that financial overview i'd like to now turn the call back over to tony for a few close and comments coming thanks jim that we played i want to let you know that i believe we're moving forward with or transformation to compelling products and innovative strategies we have positive momentum as a result of the great strides the team made and twenty twenty two two right side the organization
spk_1: develop new products and revamp our sales and marketing which allows us to capitalize on the strong sales pipeline we've developed to drive further reading expansion as we carry over this progress in the twenty twenty three we look forward to sharing the next steps in our journey with all of you think are and us
spk_2: for your continued support as we execute our strategy this concludes are prepared remarks
spk_5: and now about turn to call over to the operator secure i
spk_0: thank you if you would like to ask a question has star followed by the number one on your telephone keypad like withdraw your question again press the star one
spk_6: your first question today comes from a line of scott back with h c wainwright your line is now open the good afternoon go back to retake the my questions are totally it it does actually relief and your comment that you're seeing a little bit a hesitation i'm from potential customers and that getting too many failed over the finish line where do you think
spk_7: you'll break that their that hold and and you're allowed to move for a filter
spk_2: the actually go through the spear good questions got so what we're seeing is kind of an interesting thing that i think we can address the inner inner sales process
spk_8: what we seems some are like what i'd call late breaking questions that we can in the future and should address much earlier in the sales i go to that's been a bit of a hang up
spk_2: things like you know integration with other products kinds of questions and also details you know ip addresses that we block it what are the specific reasons we block them in and things like that all of which you know we've learned from the and we've be we're rebuilding back endure sales ursa in a process that sales people can clear those hurdles much earlier in the in the cycle said been a bit of a learning and then also with them in a trainee or channel partners
spk_9: to answer some of these questions earlier in the process as well so
spk_2: we're learning but i think the good news is you know we're starting to see you know smart questions and enthusiasm for for what we do as we do these proof of values and and so on so i am not discouraged by these questions or world as noted as delayed the cell cycle
spk_6: in a number of cases
spk_2: great i think that help or and it could you can i give some indication of what the early color or feedback a ban on cloud and and point i know you're in a bad can it somewhere between three six month at this point of sale so just kind of curious what you're hearing that yeah well i i came in this cab to for just because it's filled with holidays and people are distracted and so on but in into one we've seen increased interest
spk_10: again there's a learning gear
spk_2: selling cloud and in points a little different than selling the appliance the and so we're learning from those conversations with customers one of the areas that looks interesting in the cloud discussion in particular is people that are migrating workloads to the cloud seems to be a good entry point for us in to have that kind of conversations with like that
spk_6: you know when when they're moving workloads from on browner and brammer from one cloud to another is sort of in a great place for us to engage
spk_4: okay part in and last one am out like the marketing advantage up sequentially i assume that and due to some of these new product launches what should we expect dapper for twenty twenty three in terms of am taxed on fun yeah and you are correct in terms of the expense in the fourth quarter and we we do country we do plan on continuing invest in south and marketing and i think that you won't see us as market evan and an increase that we we do plan to continue
spk_6: run invest on guy you'll see it as a relatively flat or increase over the course the yeah
spk_11: okay great i appreciate the time got thank you
spk_0: thank you
spk_12: your next question comes on the line of exact cannons with the valley securities a line is now open yeah i good afternoon town in combat thanks are taking my questions am can might i think you mentioned with and your script that shield saw a little much turn here and you for once again a some like i was one of our legacy customers that that had adopted shield at the gate am to give us a sense of what gauntlet was going on in that situation and and some other
spk_4: or initiatives that that year undertaking that i'm monitor the overall out that shield customer base and well as i mentioned in the scraps it was an early shield customer and as the the shield at appliances never fully deployed and are not utilizing and the show the plants and so we we have taken steps to actively manner the
spk_2: it'll it's a center as the appliances that are that are out there and be in contact with the customers to make sure that they're seeing the full value of the shelf product and so we we you know we do not anticipate to continue to see this recurring in the future in this study the me i just a couple of things there you know things like making sure they're on it current release of they're getting updates that you know that reports are being looked at are all different ways we can sort of monitor how customers are either using or and are not using the product is as the case may be so
spk_12: i'm i'm feeling lot better in terms of were out on that front than a than i was in six months or so all say gotta gotta gotta that helpful in and just the other final question for me as just really around attraction the you're seeing with partners right now and it's great to hear that you're qualified pipelines that five accesses what even what you're saying and you for you just talk about maybe what what it's going to take really start to get
spk_2: momentum building their in terms of closing some of the customer deal across that partner channel and the coming quarters well my view is you know it's a contact sport so you gotta get out there rubbed shoulders in a crate awareness you don't get the conversation going and as as you might guess it takes a little while the get partners spawn up they gotta understand the product they gotta get trained they gotta go out part customers and see if there's it you know upset if there's a compelling moment for them they introduce us into that cycle one all of that takes a few turns the crime that the good news is when we get her foot in the door we not left in most cases so
spk_12: or or opportunity is the go stick our for in the door in a in a lot more places with these partners and we're we're starting to see that app itself
spk_0: got it well thanks for taking my questions and our best to like with with the remainder the a quarter
spk_13: thank you
spk_2: your next question comes from the line of at the what ascendant capital your line is now open yeah thanks for taking my question my question is have you notice any change and a competitive environment specially at the macro environment gets worse have you seen our competition on pricing i think the biggest thing that i've noticed in a get this from you know lots of friends who are see i chose across the country is there are under pressure for two things one is supplier consolidation the with i think everyone is realizing is that the more suppliers you have in a given area the more administrative overhead there is the more contract administration there is the more you have to pay attention to renew old aids and deadlines and all of that sort of stuff so i definitely see a call for you know if butter said a product
spk_14: their the end i think you'll see a announcement coming out from us this afternoon around
spk_2: and agreement we've reached with net gate who's the
spk_15: creator of a open source based firewall called pf sense that's super popular i think it's been downloaded seven million times or something like that
spk_2: it is the benchmarks that all firewalls compare themselves to and then that gates created a pf cents plus product of takes the open source and
spk_16: i'm in
spk_2: it's to it the specific hardware platforms and so on and our agreement with that gate the whoa play well in the that trend of a i want fewer vendors and a and i want more capability out of the platforms that i use and so we view this arrangement with that gate as a
spk_13: in a playing in the of the customers are and what customers want
spk_0: ah which is timely in the marketplace right now
spk_1: great author after my question your next question comes on the line of brian can slinger what alliance global partners airline is now open
spk_2: by their this is a turban on her blind tasting in my question on you get the detail on the pipeline could you talk about maybe the average deal sides in the shield pipeline and do think that if i'm a mud time minded ability standpoint the next you deals will they be the first half you thinking maybe you bring him over the finish line within the next two to three months that be great well in our plan is to land everyday oh we can i would say you know that the average don't mean that much at this particular point because frankly the been all over the map and i don't see a specific trended this particular point
spk_17: what i do see is some of the bigger deals that
spk_2: or in the pipeline the customers wanna you kind of a smaller trial to get started and then once they've successfully completed that proof of value then are opening the discussion worse in terms of a bigger broader sorts of deployment so at this point i don't read a lot in two you know those averages are those
spk_18: numbers because he just too small number to be
spk_2: statistically meaningful it
spk_19: if you will
spk_0: but i am encouraged by the thread
spk_1: great thanks all i have your next question comes on a line of aaron warwick let's break out investors a line is now open a good afternoon thanks for taking a call i just wanted to probe little bit on the carousel partnership the you guys recently announced my understanding is they're highly respected organization in know the dc area
spk_2: and this sort of what's the plan and the opportunity with them and might we see he burns fruit from that partnership yeah i think care soft was a key partner for us you know when i was federal cia oh i paid a lot attention to who are innovative partners were in you know the federal government obviously buys a lot of technology the the perception is that a lot of it is with really large federal system integrators but increasingly even when i was there in a for for five years ago harris up was the kind of scrappy innovative the company that was doing some of the more interesting it deals with the federal government they had gotten themselves i'm do all of the major contract vehicles they were quite clever in terms of figuring out how to combine pieces of things together to create a solution that a specific customer wanted they had a reputation for great customer service and interaction and so when i got here was one of the first conversations we wanted to go have a and you know i only wish we'd gotten had started forgotten that way and a little sooner than we did that i think in the long run they're going to be a great partner for us in the in the mark and said they serve terms of momentum in you know the federal cycle you know it takes a long time the get going and then once you get going then it's you know interesting for a really long time and so i don't think we're gonna see a change in that pattern from here off this is moreover mid to long term bet that one that i think will be meaningful for our commercial products
spk_1: they're not representing our son the traditional federal consulting
spk_2: contracts that we have this is all about our commercial products shield and and so on by right thank you chris it that and then i you know one that caught me by surprise was the shield mobile i don't recall you having spoken about that the flies what kind of what if you could talk a little bit more about what the plan is with that and and let the opportunity to see their well this is in our mobile version one boy though yeah and you know the move there is in increasingly mobile platforms are the platforms that people use moving away from traditional pcs and so on so it's a important surface area to protect i felt we needed to be in that space yeah and we had the ability to take our korean point technology and movement i am do in inner the android platform so through that vehicle get really good feedback from customers it also gives a potential customers a super easy way to try out our technology and to tested in their own environment even without us having to make a sales call or suggested they try it that said i don't expect that in the short run it's gonna be a huge revenue contributor but you know every little bit helps i think in the in the short run at least it's
spk_20: better for us from of marketing perspective and an awareness perspective and the ease of insertion into the conversation
spk_1: with customers yeah next good thank you final one for me i guess is just an update you know last year we talked about
spk_20: tinsley several strategic partnerships you know with macroeconomics it nations and
spk_2: situations that be more specific to that that company in of for those companies as words at delayed well the status of that you'd kind of mention that think on the last call that he knows if there was no progress happen first of the year you might have to to look into other company is well as you just to the three the your target what's what's the left on so it no progress and the original ones that i was targeting i have started conversations with additional partners in it's one of the things that led to this net gain conversation quite frankly as we looked around at the ecosystem and said you know who are the players we could lie
spk_10: actually partner with
spk_2: an interesting thing happened ah a lot of people we were talking to about our products also use the of sense and i think we've discussed and prior calls you know people sometimes confuses with a firewall or wanna know what firewalls we work best with i'm in those kinds of conversation so when we looked around and said you know who would be a good company for us to align ourselves with there was tremendous synergy with the with net gate in their pf cents plus family of products a and i am in the in the course of that conversation
spk_1: nearly everyone we talked to said hey good move you know that's gonna be agree
spk_0: a combination of intrusion him and mp of cents plus from that game so
spk_21: and i'll stay tuned we'll we'll see where where that goes
spk_20: right thank you chris a time dense
spk_2: your next question comes on the line of harold siren or goldman sachs and line of how often ah thank you for taking my question now thank you very much for at night and presentation turning out with regard to the net kate and pf sense could you give us some idea as to the time it has to now when we could do hopefully see some residents from this relationship and maybe a some sort of sense as did the magnitude of how good this stuff combination could be thank you here thanks hero for the question so the good news years we've been using p of sense here it intrusion for a long time and we also the have a couple of customers who got extensive experience with it and and us as well so we know how these things work well together so i imagine that in him in a few weeks we will have a very specific skew that we can offer in the marketplace and then over time will do more and more work to more fully integrate ah in of these products the terms or revenue you know your guess is as good as mine at this particular point but i think the opportunity here is you know was seven million downloads him some in a pretty significant portion of that active users of pf sense that's a great audience for us to market to and have a conversation with and even in our larger customers who are looking for are larger enterprises that are looking for more cost effective solutions this is great product that
spk_0: you know they try to manage their budgets and and damn and dead and manage some of the other things that i talked about earlier so
spk_2: in a hard to predicted this particular boy i'd say but i wouldn't have done it if i didn't think it was gonna be meaningful for us this year at this time there are no further questions and a camp i'll turn the car back to hide our house and it's attorney scott i am i do i do want to make one additional comments as we close the call his dad below colorado cams up quitter the remarks we do need to bring in additional funds within the next thirty days and although there can be no assurances that will be able to raise such funds and a timely basis or on satisfactory terms we are actively evaluating our options for additional financing and believe that the capital markets remain open to us so i think we've said that a couple of different ways in the broadcast but
spk_0: that's and want to make sure that the point is well understand so thank you everybody for your time and attention in your patience and i look forward to speaking with you

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