Intrusion Inc.

to Intrusion Inc., third quarter 2023 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 your questions at the end of today's prepared comments. Please note this conference call is being recorded. An audio replay of the conference call 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 Josh Carroll with Investor Relations.

thank you and welcome joining me today are tony scott chief executive officer and kimberly pinson chief financial officer this 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 the statements made during this conference call the link to the company's expected future performance future business prospects future events or plans may include forward-looking statements as defined for the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the specific risk factors that could cause or actual results that differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon the 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 U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During this 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 the call over to Tony for a few opening remarks.

Thank you, Josh, and good afternoon, and thank you all for joining us today. In today's call, I'll cover our high-level third quarter financial results and provide an update on our product offerings, traction in the marketplace, our pipeline, our recently announced securities purchase agreement through a private offering, and other highlights from the third quarter, as well as some visibility into the fourth quarter and beyond. Overall, Q3 was one of the busiest and challenging quarters in the company's history, with increased bookings, including the finalizing of the major $5 million award, as we previously announced, and an increasing number of new customer POCs in our pipeline, and our product development teams delivering exciting new capabilities, and all of that with the painful backdrop of trying to raise capital in one of the most challenging capital market environments in memory. Let me start with bookings and a view of our pipeline. In early October, we announced that we've been awarded a $5 million deal with a large telecommunications provider to provide intrusion shield support for its data centers. The implementation plan includes a phase production rollout beginning now in the fourth quarter of 2023 that builds upon a successful pilot that actually started in the first quarter of 2023. The terms of the award allow for further expansion of the use of SHIELD with the possibility of generating additional revenue after the completion of the initial set of projects. The customer has already requested an accelerated rollout, which will result in earlier revenue agreement with this customer in Q4 or early 2024. During the quarter, Intrusion also booked four other new SHIELD contracts. In aggregate, these are relatively small initially in terms of ARR. However, two of these new customers have the potential for additional revenue growth during 2024. When we signed two new reseller agreements in Q3, And our previously announced partnerships with SEIC, NetGate, First Advisory Health Services, and others remain strong and are leading to new opportunities to showcase our technology and generate new business. Our pipeline is robust, and we are focused on converting existing POVs and POCs to revenue-generating customers. And a bit more on that topic in a few minutes. Finally, with growing evidence of traction in the marketplace for intrusion shield technology, we'll once again explore more strategic technology partner relationships. We've heard over and over again that intrusion technology is unique, but the big technology players have routinely looked for evidence of customer adoption. We believe that in the next two quarters, we can begin to show those proof points and revenue that the larger technology players have been seeking. Turning to our product development efforts, I'm pleased to report that our product development teams have continued to deliver exciting new capabilities. We have released for general availability version 19.2 of our Shield software, which has many improvements over prior versions, including enhancements to reporting, additional threat monitoring capabilities, improvements to our renderer software, and significant changes to Shield's management interface. We've also completed our integration of Shield technology to the PFSense firewall and are beginning to introduce that to customers. And we've introduced a cloud dashboard which will allow customers to consolidate reporting across multiple instances of our Shield technology. One of the most exciting developments from a product perspective is our beta release of Shield on a small form factor hardware device, which we are testing in a POC with a large Starlink customer. If successful, this could pave the way for a new market opportunity for Shield with this and other Starlink customers, which is a fast-growing service and it serves customers in previously hard-to-reach and underserved locations around the world. This small form factor device can also be relevant in many other applications beyond Starlink. Now, onto our financials. As you will hear from Tim later and in more detail, total revenue for the third quarter was $1.5 million, which was relatively flat on a sequential basis. Shield revenues for the third quarter were $0.4 million, in line with the previous quarter, as we did not recognize any revenue in the quarter from new bookings. Going forward, we expect some lumpiness in revenue due to the timing of deployment, activation of our technology, and when we can recognize revenue. Year-to-date, Shield has represented 27% of revenue for the year and will continue to be a bigger percentage of overall revenue over time. Turning now to our consulting business, our third quarter consulting revenues were flat sequentially. With the absence of an approved federal budget and the conditions that surround the current continuing resolution, many new spend decisions have been delayed. The potential government shutdown could further impact our ability to get timely renewals of some longstanding contracts. But absent the uncertainty of when a federal budget will get approved, I remain optimistic about the demand for our products and services and expect growth in the future from our government customers. Apart from our government customers, we do believe that we will see some positive future growth in our consulting business as well, which is evident by the addition of a well-known customer in the travel and leisure industry that we signed in the second quarter. Finally, as we renew many of these consulting contracts in 2024, we do see opportunities for rate increases and other revenue-generating enhancements to existing contracts. As I've previously indicated in various Q&A sessions, I informally stay in touch with many former colleagues and notable CIOs and CISOs across a wide spectrum of industries. Among other things, these conversations helped me understand the general sentiment and the consensus opinion of these important individuals as it relates to trends, spending, concerns related to cybersecurity. During the last quarter, I heard that as a result of the current economic environment that we are in, a large majority of companies have been going through some form of flattening or reductions in growth when it comes to their cybersecurity teams and their budgets. Meanwhile, the bad guys continue to proliferate and launch all kinds of new and lethal attacks. This has put a significant amount of pressure on CIOs and CSOs to keep up with both technology and staffing needs with more limited availability of new resources. We believe that this provides intrusion with a significant opportunity to step in, help fill the gaps these companies currently have in their technology stack and in their cybersecurity teams. And we can help provide them with the needed capability to identify, deflect, and eliminate any cyber threats that they may encounter. When I joined Intrusion in late 2021, we were faced with a daunting array of legal issues, and we've provided regular updates on our progress in terms of resolving these issues. I'm pleased to announce that during the third quarter, we were able to successfully conclude the last of these. And with the SEC investigation now behind us, this resolves all of the outstanding legal issues that we've been dealing with for the past two years, and our team can now fully focus on growing our business. Finally, let me spend a few minutes on our fundraising efforts. As you may have seen in our filings, after careful consideration, we decided to pull our S-1 registration with the SEC to sell up to $8.5 million in stock and warrants in a public offering. It became evident that market conditions were very unfriendly, and we were being severely and negatively impacted by short sellers, among other factors. However, in place of the S-1 registration and offering, we announced on November 8, 2023, that we'd entered into a securities purchase agreement in which we sold to purchasers in a private offering an aggregate of 4.4 million shares of our common stock. each of which is coupled with a warrant to purchase two shares of common stock at an aggregate offering price of $0.60 per share, both market price at the time. The offering resulted in net proceeds to intrusion of approximately $2.4 million. The company intends to use the net proceeds from the offering for working capital, general corporate purposes, and the potential partial repayment of outstanding indebtedness to Streeterville Capital, LLC. The private offering was participated in by myself, members of our executive team, board of directors, and existing shareholders, which we believe demonstrates the confidence that both our organization and our loyal shareholders have in our unique technology. The offering also marks an important step for Intrusion as we continue to focus on ensuring we have the funds we need to propel our growth, focus on satisfying our customers' needs, cost-effective cybersecurity solutions for their enterprise. Now, I'd like to turn the call over to Kim for a more detailed review of our third quarter financials. Kim?