VerifyMe, Inc.

everyone and welcome to the verify me first quarter 2023 financial results conference call all participants will be in a listen-only mode should you need assistance please signal a conference specialist by pressing star then zero after today's presentation there will be an opportunity to ask questions to ask a question you may press star then one on a touchstone phone to withdraw your question please press star then two please note this event is being recorded I would now like to turn the conference over to Nancy Mears. Please go ahead.

Good morning, everyone, and thank you for joining us today for our earnings call presentation. On the call today, we have Scott Greenberg, Interim CEO and Executive Chairman, Keith Goldstein, President and Chief Operating Officer, Margaret Azourlis, CFO, and Kurt Cole, Executive Vice President, Sales and Global Strategy, to give an update on our first quarter 2023 results. Following our management presentation, we will have a Q&A session. I would like to bring your attention to the note on forward-looking statements on slide three. Today's presentation and the answers to questions include forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statement caption and on the risk factors of the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I will now turn the call over to Scott Greenberg for some opening remarks.

Thank you, Nancy. I'd like to welcome you to our first quarter of 2023 earnings call. We will provide a business and financial update and then have a Q&A session. Through our internal investments and acquisition of Pariship and Trustcode, we believe that Verify.me is developing a unique platform. Our goal is to increase market share and revenue with both a complete solution and an increased sales and marketing effort from the past. The first quarter of 2023 results and the pursuit of new opportunities continues to lead us to our positive future outlook. I believe the presentations today will demonstrate that the company has crossed a bridge from a technology startup to an operating company. Based upon our latest projections, the company continues to target a positive adjusted EBITDA for 2023 and revenue growth of approximately 40%, both through the acquisitions and organic growth. Our 2023 goal is continue to integrate and focus on the technologies that we purchased. Next slide, please, Nancy. Just a little bit about the financials and equity snapshot. Our stock price on May 4th was $1.86, and our shares outstanding is $9.4 million, which gives up a market cap as approximately $17.5 million. Our cash balance as of March 31, 2003, was approximately $3.1 million. Our total debt was approximately $2.3 million as of March 31, 2003, and we do have an additional $500K available under our line of credit with PNC Bank. In the first quarter, we had a substantial increase of revenue. Our revenue went from $200,000 to $5.7 million, and our inside beneficial ownership is approximately 16%. With that being said, I'd now like to turn over the call to Keith Goldstein.

Great. Thank you, Scott. And for those of you who have joined the call today, it's a pleasure to speak with you about Verify Me. I'd like to provide a business update since our Q4 earnings call about six weeks ago on March 28th. So during the last call, I discussed our acquisition of Trust Codes, a software as a service solution company providing brand protection, unit level traceability, and consumer engagement. That, coupled with the acquisition of Pariship just over a year ago, has allowed VerifyMe to transition from a product-based brand protection company to a software-driven company providing end-to-end supply chain assurance and trust. So what does this mean? Well, a few years ago, VerifyMe's product portfolio consisted primarily of covert inks read with patented devices for brand protection. This is great technology with a specific use case. Large companies, branded vectors, and no counterfeit versions they want to address. Recognizing this, we embarked on broadening our offerings. We acquired Paryship with a unique predictive analytics platform. providing shipping, monitoring, and intervention services. We take in shipping data and programmatically analyze it with key data elements like traffic and weather provided by our in-house meteorologists to help our customers know when to ship perishable items, saving on costly spoilage. We intervene or reach into the network to get product to its intended destination on time if needed, positively impacting the environment by reducing reships and thereby carbon emissions, and ultimately improving the customer and consumer experience. Real-life examples of this are in the vaccine space, where we provide guidance when to ship, reducing the risk of spoilage and reships, and in the apparel space, where a tuxedo must arrive on time for that Saturday wedding. Now, add TrustCode's capabilities to provide supply chain transparency with unit-level product traceability, authentication, consumer engagement, and brand-centric storytelling, all delivered to a smartphone, and it makes VerifyMe an end-to-end software-driven supply chain provider. Our transition to this software-driven logistics company was deliberate with a goal to create a broad solution set for supply chain assurance with the ability to generate recurring revenue and customer stickiness. Our covert ink is still an important part of securing the supply chain, but it now plays a supporting role than a primary role for the company. We're integrating the three businesses, as Scott said, together to bring a unified message and solution to the market. In a few minutes, Kurt Cole, our EVP, will speak more about that. As we look to generate customer revenue, one of the industry verticals that we are focusing on is the food and beverage market. Per Tecnavio, a market research firm, the US perishable goods transportation market is estimated to be valued at $4 billion in 2022 and grow with a CAGR of 8% through 2027. We have strong reference accounts in many food and beverage categories to include beef, fruit, honey, nutraceuticals, wine, and infant formula. These products can all benefit from our supply chain assurance services, whether it's getting something perishable to its destination on time, providing consumers comfort that what they're purchasing is genuine, or helping a brand manage an unfortunate recall down to the unit level. So moving on to the third bullet point, our Trust Codes platform is one of the few cloud-based item level traceability and authentication platform that is currently GS1 validated for its end-to-end traceability solution. GS1 is a nonprofit organization developing and maintaining the global standards for barcodes. And everybody's probably familiar with the UPC or universal product code. It's that black and white picket fence barcode visible on virtually everything we buy, and it's scanned billions of times each day around the globe. Well, the UPC code's been around for 50 years. It's a long time. And as the industry has developed and evolved, so has digital barcoding technology, adding functionality that's meaningful for supply chain participants. As a result, industry and GS1 are moving towards two-dimensional barcodes, like the QR code, which will ultimately replace the UPC code on products. What this means is that more information can be layered into the barcode to meet the demand of regulators, consumers and brands for more product information, supply chain transparency, traceability, authentication and recall management. As such, GS1 has come out with this program called Sunrise 2027. and they've laid out plans to help ensure that these 2D barcodes are going to be usable at retail points of sale by 2027. So the goal here is to replace UPCs with 2D barcodes. And while this is a massive undertaking, we don't know if all businesses will be compliant by then. We do know that many large US retailers are already embracing this. And we, VerifyMe, has the technology advantage with TrustCode's platform being GS1 standards-based and already oriented for this migration. The last business update I have relates to adopting a carrier agnostic approach for our Pariship predictive analytics platform for shipping, monitoring, and intervention services. To date, our solution has been built around one major freight logistics provider. Over the past few months, we've made significant strides in developing the ability to provide our premium monitoring services for other shipping companies, which will provide new sales opportunities for us to grow our business. With that, I'll hand it over to Kurt Cole to speak about sales and marketing initiatives.

Keith, thanks very much. And thanks to everybody for joining the call today. I'm gonna touch on a number of the initiatives that we've undertaken that Keith has summarized in his, and we're going to talk about what we're doing to approach this market in a different way. We are integrating our sales force, as Keith mentioned. The combination of all three entities puts us into a position that's very unique in the industry. Our ability to be able to deliver end-to-end visibility, unit level traceability, and a number of the other features that are presented through VerifyME and Trust Codes, we feel that we're in a very unique position and on the path to victory here. We have embarked on a rebranding process to shift our identity and our messaging, and that's expected to roll out in total by the end of Q2. and will include a total overhaul of the parry ship positioning, as well as reference the combination and the blended approach that we take going forward. This sales approach offering information logistics is critical to providing solutions and capabilities that we believe are unique to the industry. We're about to see and starting to see the fruits of our labor. We've spent the last three months with an outreach program. Our marketing efforts from a digital perspective as well as from a print perspective are starting to bear fruit, and we're excited about the possibilities going forward. We've begun to attend trade shows, and as things open up, in-person meetings are allowing us to spread our message, to be able to deliver the message that We spent 20 years in the logistics business with the addition of Trust Codes and VerifyMe. We've shifted our focus to an information logistics process. And we believe that that's something that is going to separate us from the pack. We believe, based on recent response from our customers, that we're on the road to success here. And I appreciate the opportunity to share this with you and look forward to talking to you more in the future. And with that, I'll flip it back to you, Margaret.

Thanks, Kurt. And good morning, everybody. Thank you for joining. Our queue of one financial result. Well, actually, before we get to the financials, Keith, did you want to talk about the revenue by market sector?

Certainly. So the slide that is being presented shows where our revenue is coming from. And it really supports what I had spoke about with a focus on food and beverage. We do have many existing customers within the Perryship family and the Trustcoats family that are in that food and beverage market. And they can all benefit from the services that we can offer relative to to traceability and secure transport. So that's really one of our key focuses. And with that, Margaret, I'll hand it back to you to cover the financials.

Okay, great. Next slide. It's showing blank. Is everybody seeing it? The financial slides? Oh, there we go. Great. So our Q1 financial results of $5.7 million up from $22 million in Q1 2022. Gross profit was $128 million for 31% for Q1 2023 up from $21 million in Q1 2022. The increase of revenue relates primarily to the acquisition of the Pariship business in April of 2022. Including Pariship on a pro forma basis, revenue increased by approximately half a million or 9%. is seasonal, with the fourth quarter showing the strongest performance, while the first and second quarters usually have lower revenue. Next slide, please. Our gross profit margin has increased due to the nature of the business and the current product mix. DNA expenses have increased by $1.3 million in Q1 2023, when compared to Q1 2022, relating primarily to the addition of the Parachute business as well as increases due to deal costs related to the acquisition of the trust close business, seventh expense, and increased amortization and depreciation expense. Adjusted EBITDA loss was $25 million compared to an adjusted EBITDA loss of $1.1 million. That's an improvement of $0.6 million, or 56%. Including payership on a pro forma basis, adjusted EBITDA improved by $3 million, or approximately 40%. Okay, so it's showing blank on me, but I'm hoping that everybody else can see the slide. So next slide that will show the balance sheet. We maintain a strong balance sheet. Our cash is 3.1 million as of March 31st, 2023, a decrease of 0.3 million from December 31st, 2022. In the quarter, we paid cash of 640,000 for the trust code business acquisition and the related deal costs and 160K in repayment of the terminal note and interest and drew down 500,000 on our revolving line of credit. Our working capital as of March 31st, 2023 is 2.1 million and our debt totals 2.3 million and we have 500,000 available under our revolving line of credit that we can draw down on. As part of the trust code deposition, We have an increase of $2.1 million in goodwill and intangible assets and a contingent consideration of $1.1 million on our balance sheet as of the quarter end. The contingent consideration relates to the earn out the sellers of trust codes are entitled to, which is a cash earn out and an equity earn out. We have the option at our discretion to pay the equity consideration in cash. With that, I'd like to open the floors to questions that you might have.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Based upon the time available, we might have to limit shareholder questions to 2 or 3. At this time, we will pause momentarily to assemble our roster. The first question comes from Mike Petoskey with Barrington Research. Please go ahead.

Hey, good morning. So I wanted to, the slide that included GNA sort of went by quickly there. How much of that GNA, which looked heavy for the quarter, how much of that sort of non-recurring, like what's a normalized quarterly GNA number to be modeled going forward? Thanks.

Hi, Mike, and thanks for your question. So what we had in the quarter, we had our severance expense that including GNA was about $303,000. So that's something that you won't see going forward. Then what you want to do is add stock-based compensation for our directors because in the current quarter, they... have decided to change the timing of when that compensation comes in. So that's going to be about at $500,000. And then what you have is our one-time professional fees for the trust code acquisition that comes to about $300,000. Okay.

So, I mean, sort of normalized, what does it look like? Going forward.

So normalized, it looks about $2 million, $2.2 million around there. Okay. All right.

That's more in line with what I thought. And so going forward, you guys sort of appear to have reaffirmed the previous top-line guide. I mean, do you expect sequential revenue growth each of the next three quarters? Is that how this should play out?

Yes, so we do still expect our quarters to do increase. Our fourth quarter is the strongest, so we expect the most growth in the fourth quarter, but we do expect growth hopefully in the second and third quarters as well.

Okay. And what was, again, some of the financial commentary was a little bit hard to hear. What was the legacy Verify Me revenue for the quarter?

The legacy Verify Me revenue for the quarter was about $200,000. And I apologize because I think it's my sound that's coming out. It's not coming out very well, but it's $0.2 million for VerifyMe for the Q1 2023.

Okay, great.

I'm sorry, Margaret. This is Scott back on. I got disconnected and they couldn't get me back in, but I'm back on. Okay, great.

I just have one more question. This may have also been mentioned in the financials, but again, it was hard to hear. The Paraship I know it wasn't part of the company last year, Q1, but did that business grow year over year? Hey, Margaret, I'll take that.

The answer to that is we were very pleased that this is the first quarter that on a comparison basis, Paraship had organic growth. Paraship's growth was over 8% organic growth. for the quarter compared to the first quarter last year pre-acquisition. So that's pretty exciting news for us.

So what was it, like 5.2, something like that?

It was closer to, well, this is consolidated. Parachip was closer to 5 million and change last year.

Okay. And Parachip this quarter was what, 5.5, 5.4?

Somewhere around there, yeah. I mean, it's, yeah.

Okay, and 8% is the year-over-year. All right, well, very good. Well, thanks, guys, and good job. Thank you.

Thank you.

Again, as a reminder, if you have a question, please press star, then 1 to be joined into the queue. Our next question comes from Jack Wanderardi with Maxim Group. Please go ahead.

Okay, great. Uh, good morning guys. I appreciate the update. Um, I'll just, I'll ask you a couple of questions. Um, I appreciate that the update on the guidance outlook, um, Scott, but I think, uh, last quarter, last couple of quarters, you were also mentioning a, a target organic growth for the legacy verify me business. And I know you guys are working on integrating these three, these three companies now, um, more or less, but it is the organic growth of verify me. I think you're targeting 50% plus for 2023. Is that still the case?

Yes, it is. It's still the target to get 50% growth at the Verify Me level. We did roughly $1.7 million last year, so that's correct. The thing to realize, I'm sorry I missed the first call, but the thing to realize, and I don't know if on the first question if Margaret brought up the fact, that our business is somewhat seasonal. And as we got more involved with the companies, both developing the selling of Verify Me and the selling of Parachep, we realized that the first quarter is seasonally gonna be the slowest, and then it should build from that point. So that's one of the things that only all three businesses went out seeing. And so we expect a quarter by a quarter improvement.

Okay, great. And then my next question would be, can you talk about the pipeline at all? How do you guys measure pipeline and just what that looks like for the core Verify or the legacy VerifyMe? Or if you want to talk about pipeline for the three combined companies, if you're willing to talk about that.

Yeah, if you look at the pipeline for Parashift, Basically, you have their long-standing customers, so they have a very sticky business. But we're working on some new programs and projects that we believe will take us up in that thing. So I would say, you know, again, most of Parachip's business is customers you currently have in place. When you're looking at the Trust Codes and Verify Me business, There you're looking at more of the pipeline and opportunity. And in order to accomplish our goal of the $28 million of revenue, we looked at the pipeline very carefully, and we discounted it, and we took what we feel we're comfortable with, and that's how we came up with the target number. So obviously the pipeline is much, much larger than than the number we're putting into the revenue projection.

Yep, understood. And then maybe just to follow up, it's such a critical piece of the revenue in the relationship with Pariship, but with FedEx, it's the largest customer. Outside of FedEx, can you talk about how many other customers are material to the revenue of Pariship or for your guidance for the year? How much has FedEx kind of represented that

Well, you just look at it, even though FedEx is a supplier of ours as well, as far as direct revenue, I believe, Margaret, you can answer this, but I think it's under 15%. That's right. So while we have this strong relationship with FedEx, the total revenue as a customer is below 15%. Most of our dealings are directly with the customers of FedEx. And so we're not relying on just FedEx as a customer.

Okay, great. That's an important distinction. Okay, understood. Well, great. I appreciate the update, guys, and happy to hear things are on track. All right, thank you.

As we have no further questions, I would now like to turn the conference back over to Scott Greenberg for any closing remarks.

Thank you, moderator. As you could hear from today, the company has made significant progress in the last year. And you're hearing about all these opportunities in different areas. Some of them are in our legacy business, things like baby formula, where we're getting involved through trust codes who already have a significant client there. It's things that we're hoping to leverage into many other areas. The thing to realize overall is that we believe that the combination of the three is going to give us enhanced marketing and sales ability in all three sectors, not just in one specific sector. So our sales force, our marketing, our trade name, our trade shows are really appearing overall in the whole company. And with that, you know, we expect the growth that we're forecasting for the year, and we look forward to updating you next quarter. Again, everybody, thanks for taking your time out of your day. And like usual, if you have any questions, please feel free to call the company. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.