Intrusion Inc.

Welcome to Intrusion, Inc.' 's fourth quarter and full year 2022 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 comments. Please note this 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 now like to turn the call over to Sam Cohen with Alpha Investor Relations.

Thank you and welcome. Joining me today are Tony Scott, Chief Executive Officer, and Kimberly Pinson, Chief Financial Officer. The call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects, future events, or plans. may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe as of today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to US GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends. With that, let me now turn this call over to Tony for a few opening remarks. Thank you, Sam.

Good afternoon, and thank you all for joining us today. In today's call, I'll cover our Q4 results, as well as talk about Intrusion's full-year performance, because I think that longer-term perspective is useful to understand our long-term goals and objectives. Our fourth quarter top-line results did not live up to our expectations. However, for the full year, Intrusion improved its overall performance on nearly every standard metric, capping an important year-long journey 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 were 1.4 million, a decrease of 0.2 million compared to the fourth quarter of 2021, and a decrease of 0.8 million from Q3. SHIELD revenues for the fourth quarter were 0.3 million, which was flat sequentially and up 0.2 million compared to the fourth quarter of 2021. This was disappointing but understandable when taken in the context of the broader macroeconomic landscape. We released the cloud and endpoint solutions late in the third quarter and didn't expect any meaningful contribution to our revenue in Q4 2022. On a positive note, interest remains strong for the Shield family of products, with several larger deals that we didn't get across the finish line in Q4 remaining in our qualified pipeline. Our consulting business was relatively flat through the first three quarters of 2022, somewhat as expected. However, during the fourth quarter, the business experienced a year-over-year revenue decline of $0.4 million, due to the loss of a single contract. Intrusion's prime contract sponsor experienced leadership changes and subsequently chose not to renew the final option year of a contract that had been in place since 2018. Intrusion's gross margin on this contract was 14%, and as a result, the loss of this revenue while significantly impacting the top line had a marginal impact on profitability. Our team is working hard to replace that revenue in 2023, and we do expect growth over the course of the year as a result of our reseller partnerships, our business development efforts, and referrals from our business advisory board. While the fourth quarter results were not as we expected, Intrusion improved its overall financial performance in nearly every standard financial metric during FY22. Total revenue for the full year grew to $7.5 million, a 3% increase compared to 2021. Our gross margin improved from 50% to 55%, and earnings per share improved 23 cents to a loss of 82 cents, reflecting an improvement of 22% compared to 2021. Notably, Intrusion Shield contributed 16% of full-year revenue in 2022, up from just 7% in 2021. As we've discussed, we fully expect Shield to become a significantly larger portion of our revenue as we move forward. As I step back and look at the full year in what has been my first year as CEO, we have a lot to be proud of as an organization. We've made great strides in standing up the organization, rounding out the management team, to include Tim Pinson, Chris Dusich, Ross Mandel, and Doug Halafas, who joined our CTO and founder, Joe Head, and our amazing technical team to set the stage to ensure Intrusion is properly positioned to capitalize on the significant opportunities in the ever-changing cybersecurity space. In short, 2022 is an important year where we achieve most of our objectives for the business and made significant progress along our longer-term financial, operational, and strategic goals. Let me touch a bit more on our progress and the promising market trends. During 2022, a number of product milestones were achieved. Earlier in the year, we recognized that there were some performance and reliability issues with our Shield on-premise solution. We moved swiftly to successfully increase the stability and performance of the Shield appliance while improving the overall bandwidth it can service. In addition, we realized the need to expand our Shield product offerings beyond the on-premise hardware appliance to both make our capabilities easier to demo and to increase our ability to cover workloads in the cloud and to provide Shield protection to endpoint devices. The indications of interest in pipeline expansion as a result of our Shield Cloud and endpoint products are encouraging. A couple of data points to help you understand what we're seeing. We have 20 active proof of value engagements currently, and our qualified pipeline has grown 5x from Q4 2022 levels, including the pipeline from our resellers. We continue to be encouraged by the response from our channel partners for this whole suite of our products. As you may have noticed, earlier this week, we announced the availability of Intrusion Shield Mobile version 1.0 in the Google Play Store. This is yet another opportunity for us to expose Intrusion Shield's capability to a wider audience and make it easier to understand our value, especially for protecting an increasingly mobile-first platform that both businesses and consumers are moving to. We have great confidence in these new products and are excited to have the full suite available for the entirety of 2023 and beyond. From a sales and marketing perspective, we took several measures to simplify and focus our messaging and shifted toward a more channel-driven sales structure to better align with Shield's growth opportunities. We made significant positive changes to our company and product branding, our logos, messaging, and our marketing communications, which have all been well received by our partners and customers. In addition, we have enhanced our messaging so that we can clearly articulate the value proposition of our products. Recently, a report published by Constellation Research highlighted Intrusion's pioneering of a new aspect of cybersecurity technology that Constellation has called Applied Threat Intelligence. The key message of this report highlights Intrusion's technology approach, which empowers organizations to take a more comprehensive view of their network, examining its full history and ongoing behavior to determine what is safe and what is a threat. The 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 has helped us better communicate to potential buyers the uniqueness of our new and enhanced suite of products and solutions. In the fourth quarter, we announced the partnership with VTech Solutions, an IT services firm based in Washington, D.C. With VTech's reach in four countries and 40 U.S. states, we've been able to expand our reach in providing protection to public sector organizations who are managing their critical IT infrastructures. Additionally, as we announced in February, we are partnering with Kerasoft to help protect its public sector customers across federal, state, and local government agencies and education and healthcare markets. With Kerasoft's deep industry expertise and 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 2022 in total, we announced five new partners, which expands our reach as we provide intrusion shield protection to a greater number of customers in the quarters to come. I would also like to comment on our efforts to improve the company's financial discipline and stability as we advance upon our strategic initiatives. We continue to prioritize the most suitable options against our goal of raising 15 to 20 million in 2023. While we operate in a challenging backdrop amidst a difficult interest rate and macroeconomic environment, we feel there is strong interest from the investment community in Intrusion's growth strategy and value proposition. We believe 2023 will be a key building year for Intrusion. We have overcome several of the key hurdles for the company, stood up the organization, and set ourselves up with a clear path forward to achieve our objectives. We've retired the majority of the legal overhang we started with in 2022 and have created a best-in-class organization with the top people in the field as recognized by our 2022 Best Places to Work designation. We continue to view the channel as a force multiplier, and we have strong partners in place, two of which we've highlighted in this call. We've greatly expanded our reach, both in the US and internationally, to get Intrusion Shield in front of potential customers. Long term, the demand backdrop for our solutions continues to grow. specifically in the market subsegments we serve. What I believe and continue to have confirmed from partners and customers is that our unrivaled threat intelligence data set provides a needed additional layer of protection within an advanced comprehensive suite of cybersecurity products. As we begin to see the marketed option of our unrivaled intrusion shield products, there will be a dramatic positive shift and the trajectory of growth and margin profile of this business on a go-forward basis. 2022 is 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 in 2022, such as product development, sales and marketing, partnership expansion, and financial management, have created momentum and a clear path forward as we look forward to 2023 and beyond. Now, with that said, I'd like to turn the call over to Kim for a detailed review of our fourth quarter financials. Kim?