Q4 2020 Intrusion Inc Earnings Call
Good afternoon, and welcome to intrusion fourth quarter 2020 financial results Conference call.
At this time all participants are in a listen only mode.
At the conclusion of today's conference call instructions will be given for the question and answer session. As a reminder, today's conference call is being recorded for replay purposes, I would now like to turn the call over to Joel I Chronowitz of Shelton Group Investor Relations Joel. Please go ahead.
Thank you Rob good afternoon, everyone and welcome to the fourth quarter on full year 2020 earnings conference call I'm Joel the Cromwell, its managing director of Shelton group intrusion.
The Investor Relations firm joining me today are Jack one intrusion, president and CEO and Frank Lindbergh intrusion CFO before we begin the call I want to remind you. The today's conference call may contain forward looking statements regarding future events, including but not limited to expectations for intrusion of future business.
Financial performance and goals customer and industry adoption of shield technology successfully bringing the market infusions design pipeline and executing on its business plan of each 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 material.
The from those continue to support each day.
We encourage you to review the company's SEC filings, including the 2019 form 10-K, we filed with the SEC on March 27, 2020, and other SEC filings made from time to time in which many of you discuss the risk factors associated with investing in the true all forward looking statements of need as of the date of this call.
The first day February 'twenty, 'twenty, 'twenty, one and except as required by law, we do not intend to update. This information. This conference call will be available Friday of refilling of the for at least 90 days in the Investor Relations section of intrusion website at www, the intrusion dot com and we will start the call off with the review.
The financial results by frankly, and then Jack will review of intrusion reached the operating development progress with shield and the Companys key objectives going forward.
Then we will take your questions and with that I'd like to turn the call over to Franklin Franklin. Please go ahead.
Thank you Joel and thank you to everyone on the joins US today as you know this is my first call as the CFO and I'm excited to be on board and look forward to meeting with you in the coming weeks and working closely with Jack and the team during this exciting time at intrusion.
So turning to the fourth quarter 2020 results revenue was $1 6 million compared to $1 6 million in the prior quarter and $2 6 million in the fourth quarter of 2019.
For the full year 2020 was $6 6 million compared to $13 6 million.
On the prior year.
2020 revenue from the fourth quarter and the full year were impacted by extended extended government shutdowns related to the pandemic, which delayed subscription renewals and contract starts from our government business.
However, as we indicated in the recent press release, we've begun to see signs of recovery on our government business and we see those continuing to levels that we have.
<unk> seen historically.
Additionally, 2019 revenue for the fourth quarter and the full year benefited from two one time contracts that were unique to 2019 of them.
Gross margins in the fourth quarter from.
We're 58, 2% as compared to 58, 9% last quarter and 61% in the fourth quarter of 2019 for the full year 2020 gross margin was 59, 1% compared to 68% in 2019.
Operating expenses in the fourth quarter were $4 8 million, which included a $1 1 million noncash write off related to the prior office lease agreement.
This compares to $2 3 million last quarter, and $1 3 million in the same quarter a year ago full.
Full year 2020 operating expenses were $10 4 million, which includes the same $1 1 million noncash write off just mentioned and compares to $3 8 million in the prior year.
In addition to the $1 1 million noncash write off in 2020, we had year over year increases in operating expenses were three or four primary areas.
One of the hiring of 31 additional employees across the board for the development and launch of shield.
The breakdown of these new hires are 20, and sales and marketing and research and development and three and general administrative areas.
Additionally, we stepped up marketing efforts in the second half of 2020 and preparation of our our shield launch and we increased development activities for shield in future solutions offering and so on the lesser extent, we had increased registration of expenses related to the October stock offerings, and our move up to the NASDAQ.
Net loss for the fourth quarter of 2020 was $3 9 million, which included the $1 1 million noncash write off related to the prior lease agreement. This compares to the net loss of $1 4 million from the prior quarter and net income of <unk> 3 million in the fourth quarter of 2019.
The full year 2020, the net loss was $6 5 million, which also included the $1 1 million noncash write off from the fourth quarter and compares to net income of $4 5 million in 2019.
After the accrual of preferred dividend the net loss attributable to common shareholders in the fourth quarter was 23 per share on 17 million shares compared to a net loss of 10 cents a share in the prior quarter and net income of <unk> <unk> per diluted share in the same quarter a year ago.
For the full year 2020, after the accrual of preferred dividends and net loss attributable to common shareholders was <unk> 45 per share compared to net income of 28 cents per share.
The diluted share in 2019.
Cash and cash equivalents as of December 31, 2020 of 17, $16 7 million compared to $1 5 million in the prior quarter, reflecting the $18 2 million in net proceeds from our successful follow on offering that closed in October.
Working capital of $16 2 million until last any debt at the end of the quarter was 633000, including the current portion.
In terms of guidance, we will not be providing quarterly guidance on today's call. As you know we're still on the early stages ramping up our orders on shiel is very very difficult to.
Accurately predict the exact timing of the revenue ramp up however, we do want to reiterate that we're extremely encouraged by the high level of interest and the demand in such a short period of time since launching the shield to the market and we expect to continue the strong momentum into the coming quarters ahead.
Now I'm pleased to pass the call over to Jack to review recent business developments with shield and several other activities in the company Jack Thank.
Thank you Frank.
Appreciate you given that cover for us and thank you all for being on the call. Today. We are extremely excited about the reception that shield has gotten in the marketplace since we launched it.
And the progress that we're seeing in the field.
I can tell you that the product continues to perform near perfect.
As one of my prospects as I was quoting them some of our data actually quoted back to me on the call earlier today.
Our numbers show that we are 99.999% accurate every time, we make a decision about whether we kill of connection or not.
There is no product on the planet that can get close to three nines much less five nines.
Most firewalls, most cyber security products actually tell you they have of 30% ore ratio. So we are orders of magnitude on the other side of this equation compared to any other technology.
Again, I'll draw you back to what makes Shunyi.
Shields, so unique and so valuable.
And I'm not sure that people, even though we've talked about this many times have fully picked up on it so I'm going to restate. It this morning.
With me this afternoon.
Yeah.
Shield is really all three of intrusion technologies married together and of <unk>.
Single product solution the.
Trey Scarp database that we have created manage grown used for 25 years is the core of what makes she'll work today.
Everyone asks me all the time, how can our AI the so much more accurate than any other companies in the world.
The answer to that is understanding AI.
AI is two things, it's mathematical algorithms that teach computers how to learn.
But that's actually a very small piece of the equation. What AI is really about as Google will tell you and says all the time on the news on Amazon says all the time.
It's about data.
If you have a massive amount of data and AI can learn any and everything there is to learn.
You don't have enough data you can't learn anything in fact, you'll learn.
<unk> trends.
The reason of our AI of so as we have the only 25 year old.
Hundreds of Petabytes of data of Internet traffic and malware for 25 years that our AI studied to learn from so that it's the smartest that is and it can have five nines of accuracy and we think we can take that the six nines shortly.
We're working on improvements right now to do that I want it to be near perfect. So the true Scott database, which this company has developed for 25 years is the core of wireless products exist and why it works equally important is the <unk> product, we have had the <unk> product in production.
For 12 years, it's on release 16, I think if I remember correctly.
The ability to open real time every packet of data coming on or going off of your network is a patented unique and valuable technology.
For example, you may or may not realize most firewalls.
<unk> opened 10% of the packets coming onto their network.
Past, 90% of them without looking at them because if they tried to look at all 100% of them. There was slow your network down too much on you wouldn't use their product.
We can actually open every packet and not slow year network down so the savant technology that we've had and improve for 12 years again as a core piece of the technology of shield. How we open inspect every packet of data is with the support technology.
<unk>.
The only new thing that there is in shield is the artificial intelligence that learn from the database that can interpret what it finds when it opens a packet of data and how it can decide if it's good or bad when humans could look at the packet of data and have not a clue.
Whether it was normal traffic are not normal traffic.
I can tell you is we're proving with five nines of accuracy, whether thats good or bad data. So you have to think about shield as the combination of 25 years of R&D 25 years of products in development 25 years of expertise around cyber crime.
Bind into a single product that works as the only.
I'll say it again, the only cyber security products on the planet that real time opens every packet of data coming on to your network are going off of your network and specs It and makes the decision as to whether it passes or kills it in real time.
Not later not by somebody look at it on an alert not by study on logs later, but real time, it happens and its five cut five nines of accuracy.
And again as I've told you before in that rare occasion that we would kill US session veteran employee feels is valuable and necessary for them to do their work. They can real time override the computer's decision to kill that session and reactivate it and continue to work.
So an employee is never going to be bothered by our technology.
Now how we can do that is of the fact that while we say we're going to trust. It temporarily we're going to let that employee connect.
We then send that request up to our supercomputer to be looked at by our Master AI.
So what you can do at the middle of second speed level is far more limited than what you can do if you have on our two two analysis analyze it so when we send that up to the supercomputer it'll analyze if it comes back and says yes. This is the safe connection we should have allowed us we know why the client thought this.
Was not safe, we're going to now deem this as approved we'll never block. It again on the employee never get that message again and everything goes on is working.
On that rare occasion that one hundreds of 1% of of time that we're wrong.
And we decided no this is really bad.
Should of been blocked we immediately re disconnect that connection so that connection is probably still going on the veteran employee. We go back and we immediately terminated and we never allow us to connect again, we actually call. The it department and tell them that we've done that and tell them why we've done it therefore, we're keeping.
On your networks safe, even while allowing you to override our computer decisions during those rare exceptions that way, we can be near perfect and everything we do employees can do everything they need to do.
Now why do we sometimes kilo session that's actually good news.
99% of the time, that's a brand new U R. L that we haven't had time to learn about yet the just got introduced maybe on the the network that day that some employee knows about it and is now using it. So therefore, he thinks it's safe because he knows the smooth.
So that's how that happens on why that sometimes comes up but together the technology allows us to have five nines of accuracy and still keep employees happy and functioning without disrupting them. So I hope you don't might be checking the minute to explain that but again I talked to a lot of you various times during the <unk>.
And I hear things coming back to them and say yep. They really still don't understand how <unk> works and why it's different I better make another pass at that so let's get back to the pipeline again two bonds. We have seen the pipeline go from zero to.
Fortunately 100 companies that have our product in trial right now in their labs Fortune 500 companies that have our shield installed in their network testing yet.
Mom and pop companies that have shield installed in their network and testing it.
Government agencies.
Both federal and state who have shield installed and are evaluating the so our pipeline has gone from zero January 4th two very large with very significant customers in all markets of all sizes in just two months.
I have 42 years of selling technology in this industry.
I have never seen the launch of a product generate of pipeline. This dramatic.
Just quickly.
So while I can't give you more details on it right now I certainly want you to have confidence that our salespeople are as busy as I am.
There's nobody sitting around us not actively doing something because of the demand is out there.
And how are we going to get even more demand. While let me just pointed out of couple of significant things that have changed that are very very important to me.
The excuse me.
I have been fortunate enough after looking for some time to hire of what I think this is one of the top chief marketing officers in the industry.
Gary is our new <unk>.
CMO.
Gary came to US just this week.
So I hired.
Davis by the ways is full name.
Gary comes out of Intel and Mcafee, Gary has 15 years of experience in the cyber security industry at Intel and Mcafee.
His knowledge his customer relationships as experienced with marketing is understanding of Martech and how you really generate warm interested.
The viewers on your website is the best I've ever come across when I found Gary I felt like it was.
On a message from Heaven, I really felt blessed to have found Gary to be able to recruit them to our team. He started Monday of this week. He has been non stop every day. This week. He comes to work every morning as excited as I am he is having he says the time of his life I'm sure. He is listening on the call.
All of this evening with us.
In addition to adding Gary, which really completes and fills out our management team.
You really can't have a technology company dealing in a complex intense.
Competitive space of cyber security without having the chief marketing officer.
So to be able to step up and add.
At that level of character to the team is huge for us and that's why I wanted to spend a minute of talking to you about it again I am very very excited and pleased to have Gary on the team he and I worked together like we've known each other our whole lives.
In addition.
We announced that we added a board member of very recently.
And again I am very very excited.
The about talking to you for a second about could shrink.
<unk> comes to us out of Red hat Linux one of the fastest growing most successful technology companies in the world.
I have tremendous respect and confidence in the Red hat Linux technology.
And the work that's the drink of has done to help grow that company from the startup years ago two of $3 billion.
Annual company last year and get acquired by IBM.
As I'm sure you know billions of dollars is a huge success to her and of our management team at Red hat, and therefore be able to pick her up an adder to our board of directors is a huge win for us not only does she have the broad experience of an op.
Operating systems, such as Red hat, Linux with international customers and distributors and partners.
But she used to be the VP of of software company that did cyber security before Red hat Lettings. So she does understand cyber security far more than most executives even in technology companies. So I think could shrink is going to be an extremely valuable asset to us here at the team she broadens us from the broad and.
The story financial Board of Director type members, we've had in the past that this company to really be in a commercially based public company.
The new technology.
Participants so I think could shrink of that is going to be of great resource generally I'm very very excited again to take a minute to talk to you about how lucky on how fortunate I feel to have found her and the convinced her to join our company.
And in that vein I will just go ahead and share with you as I think I've said before on these calls my intent is to grow our board of directors. Our company has gone through a major transformation from.
Being a D O D specialized consulting.
Entity.
The commercial solutions.
Offering.
And that brings our need to have a broader set of board members and strictly financial which was the company's history. So I will be looking to add another board member or two to broaden us.
To bring in the skills, we need for example, one of the things that you would obviously expect me to looking far that I am looking far of interviewed several already.
Someone who has been a formal.
So of Chief Information Security Officer, I want a board member with that background to be setting up the board with me in helping the advisor and to help grow this company into the future. So one of the things that continue to work on while I think the management team is complete I am going to.
To grow our board of directors.
To be a broader set of skills that this company needs given where it is headed today and where we are so again with those significant enhancements. So I think those are dramatic growth factors for our company. This is going to help transform us and help accelerate our rate of growth.
With that let me just say it again I think that the market is the largest market in the world.
34 million businesses in the United States alone.
90 million businesses worldwide.
All of those businesses can and should be a customer of shield.
Every one of them uses the internet commercially every one of them therefore is subject to cyber crime.
Many of them if not most of them have already been breached at least once it is not uncommon for me to talk to a company that's been breached three times in the last three years.
That's how severe cyber crime is today.
Literally every three seconds of every day a business somewhere in the world was breached by cyber crime.
That's ongoing non stop every three seconds.
The solar winds breach from November December should have been a wakeup call for the world of how bad cyber crime has the comp.
It is growing at an accelerated rate like nobody could of envision.
It's hard if not impossible to calculate the total losses the business from cyber crime. The number of this commonly used and I think ex is extremely small is three trillion dollars and verifiable losses to cyber crime last year alone.
And the estimate is six trillion dollars will be loss this year.
And I think when you look at Internet intellectual property customer list credit card information source code.
As well as ransomware that the number is actually much much larger than that.
What we see what we track of what we know by our database through trade scarp or savant pack.
Packet inspect deep packet inspection and on.
Our AI tells us that a minimum.
Of 12%.
Of all Internet traffic is malware today.
I have seen estimates as high as 32% of all Internet traffic today, maybe malware.
Again as you remember from our early customers, we talked about in just three months at just 12 businesses, we killed $77 million malware attacks.
The problem gets bigger every second of every day, it's an extremely profitable business almost nobody ever gets.
Prosecuted for cyber crime.
It's not like robbing the bank. There is no risk you are not going to jail Youre, just getting free money from somebody else and that's why it's growing so fast and Thats why so much money is being spent on it.
One report that I saw.
Yeah.
Four five years ago.
Actually showed that a.
Cyber crime organization that was.
Shutdown successfully by the FBI and other international agencies that are involved was actually spending of $100 million a year in R&D developing new malware agents.
These are not kids these are not just.
Cyber criminals. These.
These are companies organizations with phds with scientists with supercomputers that are disrupting the world.
One multi billionaire who was quoted in the paper all the time recently said he believes cyber crime is a greater threat to humanity, not just business to humanity the nuclear weapons.
Warren Buffett, if you haven't read that quote.
Warren Buffett, a businessman not of cyber engineer not an engineer of period, just insanely successful man, who owns well over 100 businesses realizes how dangerous cyber crime is and that's why he made that statement. So I don't think we could be.
Be in a better place in the market.
I came out of retirement, because I have an insane passion for stopping cyber crime.
I believe we have invented the OLED technology on the planet that can continue to effectively stop cyber crime every second of every day, that's why I'm here, that's why I'm hiring the best minds and the best people on the World. That's why we have the best AI engineers.
And that's why our product gets better every second of every day.
With that.
We're going to open up the questions is that right Joe.
Joe Jolson moderator, please queue up please.
Please queue up for questions.
Thank you.
To ask a question you will need to press star one on your telephone.
To withdraw your question you May press the pound key.
Please standby will be compile the Q&A roster.
And your first question comes from the line of Zach Cummins from B Riley Securities. Your line is open.
Yes, hi, good afternoon, and thanks for taking my questions I appreciate the commentary around the opportunities of our shield ahead.
Jack I know after your beta tests that completed at the start of this year. It sounds like the majority of those customers that have went on in and became actually paying customers sort of shield is there any way you can kind of quantify the opportunity there just within the beta participants just to give us a sense of the potential seat opportunity.
Well, we are we have not given public numbers.
And as I've said, many times cyber security customers.
Sure.
Our very very very reserved about disclosing who they are what they will tell you about them because they believe any information they give.
The cyber criminals, they give them more of an opportunity to effectively attack of now we have done three.
All of the case studies on three of those customers. So there is public information by names of those customers of three of those companies that.
Of that are using the technology, we are working with other beta customers former beta customers to also get them to release. The case studies, we think we're going to get most of them to release in the next.
The 30 to 60 days. So we are trying to get more data out there I can tell you as we said before.
The 90% of our beta customers became paying subscribers on the shield product.
Oh.
I would have liked of had 100% I've never before in my history has seen a company accomplish the 100% of beta customers and in fact, I can't really find a company that had 90% of our beta customers convert so I think that's a very very impressive number.
But we're able to do that.
I can tell you that.
One of our former beta customers, which is now a purchasing beta customer is using the product at multiple locations here in the United States.
And is rolling planning the rollout as soon as we get approval and sixth foreign countries.
A worldwide business and they want to be protected worldwide. They want shield running in every one of their offices around the world. So they are simply waiting on us to get federal approval to be able to export the product, which I think we will have by the end of the quarter. The lawyers right now are telling me thumbs up or getting every check box.
From the government, we're going to get this done very quickly and that's very very exciting because of the international demand, even though we're spending nothing to advertise promote.
Internationally, we are getting a tremendous.
Growth of inbound request.
The France, and Germany, and the United Kingdom.
In Africa, and Latin America.
The interest internationally is really at this point mindboggling.
We have resellers that are begging us to let them sign up to be resellers, even though we can't ship internationally yet.
So the demand internationally I think is extremely high so we have not given out seat numbers in.
And we have not given out revenue numbers on our customers to protect their privacy.
You can work backwards from that by the case studies by looking at the size of the companies and get some of that information that away.
We will as the company grows and as people get more comfortable.
More public information about the number of seats certainly our revenue each quarter will be a back of wage of back into that but right. Now of companies are very very reserved about wanting to reveal that kind of information.
Understood and then speaking on the distributor and reseller front I know you can't do it internationally, but I mean can you speak to the progress you've seen with signing up distributors and resellers of your domestically.
We have 16 under contract as of this phone call.
We have.
The 42.
In total that are in process.
But I think we will have signed up by the end of Q1.
So that is going as fast as the other pipeline again.
It's close to opening floodgates people are learning about the company. They are learning about the technology.
They're wanting to sign up so I think thats going extremely well we should have I think starting next week. We are doing a lot of rework on our website right now to make a dramatic better.
One of the things, we're going to be adding is who those resellers or how to get a hold of them. They will be on our website very shortly so we will be adding Nash. So youll see that list as they come there and as we add them you'll see the list continually growth so that that should be dynamic on a week to week basis as they sign up once we get that launched here I hope.
I think of the next week.
Understood and I appreciate the commentary kind of you.
The outlining the pipeline I mean.
I know you can't give kind of specific cheap quantities, but I mean can you outline or even kind of quantify what some of these potential opportunities could look like at either some of these major enterprise customers or some of these federal government agencies.
And I guess the second part of that question is do you get paid as some of these companies are testing out the solution it sounded like youre already in the door with with.
Many entities on that front.
We are not charging for evaluations.
We might do that at some point, that's something I've never liked doing at any company I've been at I.
I just feel like it's kind of a requirement of the complexity of the technology, we deal with today to give customers that ability.
To get their hands on it especially.
Especially of product as unique as ours I mean.
You listen to what I had to say about the product, it's very very easy for anybody to say sounds too good to be true Jack I've heard that before so I understand that it does sound too good to be true I've been in cyber security technology of our 42 years I designed it invented this product and I think it's too good to be.
So I give them a free evaluation.
They have to go through of qualification to show the size of the opportunity the level of executive commitment in their organization the ability and their budget to funded before I'm going to send them hardware, but we are doing that without charging them today.
The.
I should of and again.
I'm sure. It's hard for you all understand how busy one CEO can stay but.
I am extremely extremely busy if I'm not visiting with customers, our resellers or distributors, then and I am not recruiting somebody.
It's just unbelievable one of the things I had planned to prepare for today and I just ran out of hours and the fact that it just didn't stay on the front of my mind.
Is that I wanted to develop the list.
With some more information for you on that end.
So I'll get that out to you shortly but again I think the pipeline again I can tell you I have a fortune 100 or more than one fortune 100 company that is evaluating the technology right now.
That single any fortune 100 company could be anywhere from a 100000 seats to have millions of <unk>.
That's just the nature of Fortune 100 company.
Any pretty much any federal government agency can be 50000 and up so any one of those are elephants that will change everything about this company overnight.
Our target was not to go after these big boys, because theyre generally slower to the side.
And they can drag you along but we're just we can't not pick up the phone and that sort of some of our highest interest has come from.
<unk>.
Mid sized certainly we have companies of every character all across the company all across the country that fall on that 102 of 500 seat range and.
I think we're going to see many of those come online some of those in Q1 lots of those in Q2.
Because they just take the last time to make decisions.
So.
The pipeline is growing every day it gets bigger.
Again, I think the things Gary will be able to do from a martech standpoint to bring more warm leads to us to bring more eyeballs to our website again. He is doing a completely new website for us that will generate more traffic.
The pipeline is just going to grow rapidly.
Okay.
Excuse me yeah understood I appreciate the additional color on that end.
As far as of the development side I mean, you've mentioned some of the other products that we could be expecting for shield here in the upcoming months.
<unk>, either cloud or even kind of of remote worker capability and can you give us on update on the development progress there and when we could be expecting some some new releases.
Well we are the two products. We are really focused on working on is the remote worker on.
Now again.
We handle the remote worker.
Better than people understood. We did before so if of remote worker uses of VPN to connect into their corporate network than they are automatically protected by shields a day.
And what we're finding is weak.
Honestly, we haven't found a customer yet the comes to us.
That is not using the VPN. So the need for a specific remote worker products may be a lot less than we thought it was.
So we've actually.
I've actually pull some resources off of that project until we learn more about the market opportunity and whether it's justified or not because we're just not finding.
Companies, calling in saying the remote workers are not using vpns much more than I expected every company that went remote with Covid was apparently smart enough to force those employees to use the VPN, which makes them automatically part of the network and protected by shield so that product seems.
To have of less importance to us than we thought it was gonna have as the result again, we're limited sized company. We have limited resources I have pulled some of those resources onto some other things.
And while we track that opportunity.
The cloud again, I think was a huge misunderstanding.
And I'll take blame for that myself initially when we launched the product.
Three different cloud segments that have to be looked at it's not just cloud or no cloud.
According to Gartner and Forrester.
70% of cloud customers today operate in either a private or hybrid cloud environment.
Again like the VPN client.
Shield today works perfectly normal and fine in a hybrid or private cloud implementation, we ourselves here at intrusion run out of a private cloud environment, and we certainly use shield of running in our own private cloud protecting our employees.
The country.
So.
When you look at the cloud market and understand that 70% of it is hybrid or private and we already support that that says we support 70 per cent of the cloud market already.
Only thing we don't support is what's called multi tenant cloud that's your Amazon and the Roes you're.
The multiple users from multiple companies are calling in and being serviced by the same piece of hardware and the same application.
That is a extremely complicated engineering task to be able to implement in a multi tenant cloud.
I have one of the top cloud architects in the country.
Virus Parsons work on farming.
Ours is working non stop on that implementation. He believes they will have that done by the end of the year.
With his team.
So we are continuing that but again I'm not I'm not out hiring more resources trying to get it done faster because of the urgency to get it done seems to be a lot less I only have one customer to date that is a multi tenant cloud environment that has asked me for shield.
All of the other customers that would talk to cloud ended up even though having a private or hybrid cloud where shield works for them today. So the majority of the market is available to the shield product currently today.
Understood. That's helpful. And then just final question from me I know, it's not really the focus but on your legacy government business. It sounds like you've started to see a recovery on that side I mean, how should we be thinking about that business in the upcoming year just given the challenges that you faced in 2020.
Well I mean as I've always said that the legacy business is a flat business. There has been a flat business for 20 years.
So I've never said theres going to be growth in the legacy business.
I sustain and support and continue the legacy business.
Primarily because I view it as my R&D Center.
And I know I've said this before so I mean.
That is where intrusion gets access to the newest hardest most complex cyber breaches.
The government has experience that they want outside help with and therefore, we get to be involved in those and learn from those and the cutting edge of the latest and greatest thing Thats going on.
We continue that not because I think as a growth business because of that don't think of it as a growth business.
<unk>.
It's a sticky as a stand alone self.
Self profitable business, but I view it as my R&D Center that gives me the cutting edge cyber crime attacks out of China, and Russia that I don't have to wait to see at a customer site.
So we're going to continue that we are seeing those net revenue dollars come back. We think we will see about the same status that we've had at about that $10 million annual revenue number that the companies basically operated at for 20 years.
It's just a niche market. So it's not it's just not likely to grow significantly but at the same time. It is valuable so I am going to maintain it at the same people working on it the same skills I haven't pulled anybody off of it I'm not the.
The fact I promoted.
Mike Mccloy to beat the VP to focus on that because the CEO of <unk> and used to focus on that business. What he was here. He is not here and I am focused on the shield business. So I promoted Mike drove EPS. So that he can full time focus on maintaining that business farming.
Understood well. Thank you again for taking my questions on a best of luck on the quarter ahead.
Thank you for following our stock we appreciate it.
Your next question comes from the line of Ross Taylor from <unk> investments. Your line is open.
Jack can you walk us through a little bit there the testing of the adoption process you expect from the large corporations and government agencies you'd commented that you thought they tended to be slow and kind of.
Process oriented in the adoption cycle, but yet they are the ones knocking down your door. It seems at this moment, but can you walk us through how long does it take it should we think about it.
In each of those like being a beta test and what kind of resources do you need to commit to help get those over the line.
Well sure I'll be glad to comment on that one.
Certainly I am extremely pleased and excited by the demand.
That we're getting out of that segment early on that's not normal.
I think that is a direct result of the solar winds breach and the fact that it took out 16 federal agencies.
They are all burning right now bad from this breach they're all in panic mode, and therefore, they're willing to be a little less of.
A little more aggressive in looking at new technology. So.
I think it's going much faster than I thought it would.
Both by the level of interest.
And by the work Theyre doing.
They are of taking the product they have put into use in their environments.
And the feedback they're giving us is that their mouths are still open they haven't closed yet are there.
They are shocked every day every day theyre, telling whoever the account person is working with them that theyre shocked.
But they can't find anything wrong with the product that it does everything we claim it does.
And if there is the volume of traffic of malware.
They were never seen before that was existing on their network anyway that they didn't know was there that we are now identifying four of them. So I think the adoption will be much faster than I anticipated.
I think we will see that sales cycle.
Happened certainly this year.
Normally if you're if you've ever been in.
You know that historically since my days at IBM in the seventies the.
Cell cycle for <unk> technology was 12 months to 18 months I mean that hasnt changed literally in 40 years, and I think thats still what Gardner enforced and I will tell you the answer is today.
I believe we're going to see organizations and the federal government and unfortunate in 100 companies make a decision and of six to nine months timeframe. Instead of a 12 to 18 month timeframe to implement the shield product to put it in place and get that protection out of it so.
Spending very very little resources.
To support those.
So again.
We don't have to go on site, we don't have to put anybody on the plane. We don't have to get on line for us to configure the product they take it out of the box they plug it into whatever part of their network that they are willing to trusted on and they turn it on and they start monitor on what it's doing farm.
And they are not having any problems so theyre not opening areas.
So based on what we get feedback of how how large the kill rate number is growing every day that they didn't expect and they can't believe and it's more out of disbelief can this really be going on is it really what I'm, saying.
It's just to me, it's just phenomenal I think it's going to result in positive sales much quicker than we expected.
Again, nobody has reported above none of my new implementations for trial products have reported a bug to us yet that we're working on.
And they have not reported any failures of the product. So there is simply the evaluated it and we.
When all you're getting is everything's thumbs up I don't know how they don't move forward.
Okay. Now do you would you anticipate you've worked with the government before.
And the government is not always the most efficient place to operate between cycle between budget cycle. We're in the middle of the fiscal year do you anticipate any type of pushback from.
Those people, who write the checks implementing this ours because it's all of the wins and the like do you think this is the type of thing that if they want it they will get it.
I, absolutely believe again I was there for four years as the CIO.
Watched what happened the budgets.
During breaches.
No what happened when I got brought in I believe that the federal government has already made offers of money to every department for cyber security enhancements in fact, the they are mandating cyber security enhancements.
I know I've been told that by multiple people. So I believe the money is available today, regardless of the time of year of the budget cycle for them to fund a new purchase of cyber of the shield solution to protect their agencies. So I don't believe thats going to be an issue at all I don't think of the transformation.
The Trump Dubai is going to have anything to do with it I think any president of this country is aware and concerned about the threat cyber security several warfare brings and.
And I think this the solar wins again this was both Russia and China involved in this.
And I think it's got everybody's scared the things are worse than they thought it was.
Bob.
Maybe with I wish you. Good luck in getting that first major customer and I think that there is still a lot of people feel that this is too good to be true I think the market reflects that and if we're able to get the validation of the major government contractor of major fortune 100 or <unk>.
Fortune 500 type company that has the broad international reach I think it will put the naysayers.
Yes.
It's a very quick one.
I totally agree with you Ross I appreciate your comments I'm going to be in D. C. In three weeks again.
So again I am putting a high priority on this.
The big.
The of the impact it will have on businesses as well as just the overall marketplace.
So it's very very exciting thank you.
Thank you Sir.
And again, if you'd like to ask a question. Please press Star then the number one on your telephone keypad your net.
Question comes from the line of Howard drops from Wellington Shields. Your line is open.
Thank you Jack when he discussed Fortune 100, the fortune 500 companies.
Can you give us a sense of the potential size of.
How big of of how small.
Hey.
Client could possibly be here in terms of number of seats.
Yes, I mean, they're all big when you talk Fortune 100, Fortune 500, Howard there, albeit there everyone big.
<unk>.
Again.
I don't want to be misleading I don't want to certainly.
But again I've dealt most of my career I've sold to the Fortune 500 Slash 100.
All of those companies well I know how big they are.
The.
One of the things that's unique I think of the cyber security space as Youre not likely to make a cyber security purchase for a segment of your business.
As you do most other technologies, you're going to either believed that this is the show the game changer or it's not an if it's a game changer youre going to want every seat in your company on it so.
I mean.
Certainly.
Most of the <unk>.
Defense contractor fortune.
500, 100 companies that we're talking to right now are in the 100000 seat range day one.
Any one of them makes us of Rockstar and Theres multiple ones that I'm in discussions with right now all of them names you would recognize in one second.
Same with.
The <unk>.
Fortune 100 500 businesses.
Again, one of our beta customers, which became a purchaser.
Is much bigger than I thought I actually did not know about their international components to tell you. The truth during the entire beta process I thought of them as the U S company there of manufacturer.
Here in the U S.
I only learned when I met with the CEO.
Yes, it was from about six weeks ago seven weeks ago.
That he had subsidiaries and eight other countries around the world and that he has already told his board is rolling it out internationally as soon as I can get clearance. So again that was a complete surprise to me they went from what I thought.
It was the 1000 seats to potentially now 8000 seats.
And Thats, just the mid size U S business.
That's all I had thank you.
Thank you.
Following us and Thats. The I appreciate your question and I look forward when we can announce some of these customers who can give you a real details.
It's an exciting time to be out there in the market with what we have.
And there are no further questions at this time I will turn the call back over to Jack <unk> for some closing remarks.
Again I want to thank you all very much for.
Following the company your involvement with the company you advise the.
<unk> given any during individual phone calls I do appreciate interacting with you.
This is I think the most exciting market right now in the world to be cyber crime is growing at an exponential curve all of it bad.
And we are really the first solution that come to market with patented technology. We filed the 19 different patents, we don't know how many of those will get but we know that we'll get many of them. So we can defend this technology, we know that our tray scarp database is a one of our kind of database.
As there is nobody else sitting around with another database that they can point, there aaas Aif and havent get of smartest.
There are simply as a second database in existence and Thats why our database results are five nines of accuracy as compared to 30% error rate of everybody else's product. So thank you very much for working with US. Thank you for your patience I appreciate your excitement.
I know you all want to hear me announce new customers.
It does take a few weeks in a few months to sign up big companies and move the needle like this it is going to be of very very exciting year Trust me.
You again have a great evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Sure.
During the second quarter earnings.
The.
Yes.
Yes.
Good day.
The answer.
Yes.
Yes.