Q1 2022 Intrusion Inc Earnings Call
Sales model and strengthening our strategic partnerships and finally, improving our financial discipline, including making sure we have sufficient operating capital to support our research and development marketing and operating needs for FY 'twenty two and beyond.
And by executing on these initiatives, we believe that we can and will create a bright future for intrusion its customers and its shareholders.
I wanted to take this opportunity to provide an update on each of those initiatives.
Starting with our products we.
We are on schedule with our plan to unveil new innovative intrusion shield branded products that meet the ever changing cyber security challenges that the world faces.
During our last call, we talked a bit about the current market for the intrusion shield appliance.
We spent much of the last quarter, making product improvements, including performance enhancements and adding several customer requested features and capabilities.
For shield cloud our product development efforts remain on track and I am pleased to announce that the cloud based shield product will be available for demo in the next few weeks and full general availability release of the product remains on schedule for the second half of 2022.
I also briefly mentioned the second new product intrusion shield endpoint.
Again, our product development efforts are on track and like intrusion shield cloud, we expect to have customer demo capabilities in a few weeks with <unk> in the second half of the year as well.
This product will support of Windows, iOS and Android clients upon release.
I've been personally using early beta versions of this product and I am excited about its potential.
Finally, I also mentioned a high availability high throughput version of the shield appliance development on this product is also proceeding on course, especially as it relates to the planned software improvements, but I do have some concerns as it relates to hardware supply chain issues were.
We are seeing continued chip shortages and longer lead times across the industry and many are predicting that this will continue for some time to come and may even become worse in the short run I expect to know more about the full impact of this if any in the next few weeks.
The release of these new products in the second half of the year will pave the way for intrusion shield to become our main source of revenue growth in the future.
Now turning to sales and marketing as we have communicated we are in the middle of a significant transition period for intrusion.
Towards the end of last year, we took measures to realign our sales and marketing resources with.
We've hired a new channel director and made needed improvements to our sales force operations, we continued to enhance and improve our channel support training and enablement processes.
As promised we are clarifying our value proposition and have energized our channel partners with a renewed focus on making sure. We can support their efforts as a force multiplier for our sales efforts.
These actions are leading to more meaningful and fruitful customer discussions poc's and pipeline development.
And we're already starting to see the results of these efforts with several new deals now being closed in Q2.
Already double what we did in Q1 and a significant increase in our qualified pipeline, which is three times greater than our ending Q1 pipeline.
On the strategic partnerships front, our discussions have progressed with three major technology partners, but I don't have anything definitive to announce and will not announce anything until these have matured into a formal agreement.
We remain optimistic that we will have something to announce on this front in Q3.
As we continue to pursue these strategic initiatives, we do so with a commitment to exercising financial discipline.
The realignment actions taken to date combined with our commitment to financial Prudence and good stewardship are providing more stability and savings.
We continue to further strengthen our balance sheet and overall financial flexibility to meet our operational and strategic needs.
We closed on the financing announced last quarter for the sale of $10 million.
Unsecured notes to street, a real capital.
Our operating needs are being met and we are confident that the capital markets remain open to us for additional rounds of funding in the near term. These.
These capital raises will allow us to invest in the development of shield and ensure its competitiveness in the global market.
We are seeing the results of these efforts in our operations and strategy as we execute on these promises and expect the financial results to follow.
We move forward with the same commitment to investing in our business in a responsible manner that is commensurate with our prospects for profitable growth.
To further aid these efforts we've strengthened our team in the quarter by bringing on Ross' Mandel, Chief strategy Officer, and Christopher <unk>, Chief operating officer.
These are both industry veterans, who will help us execute on our repositioning and drive growth.
Before wrapping up let me also address our legacy consulting business.
This piece of our business showed some stability last year during the continuing resolution and it remains a healthy part of our revenues.
As we've previously discussed with you the continuing resolution or CR.
As a significant impact on the amount of federal funding that is granted for cyber security.
And while the CRE ended late in the first quarter of this year, creating a tailwind for this business segment. It occurred too late in the quarter to yield any meaningful revenue for the period.
Of this our revenue in Q1, and this piece of the business was flat compared to the prior quarter.
That said this is a net positive event and with the <unk> behind US we can expect to generate revenue growth moving forward.
Seen increased levels of growth in Q1, and expect that this part of our business will remain healthy and grow in Q2 and Q3.
Finally, while historically, we've been focused on the department of defense side of this business, we are now making investments and exploring opportunities on the civilian side of the federal government to market intrusion shield not only to our longstanding customer base, but to expand our EFT.
<unk> to include more traditional administrative and civilian government entities.
In conclusion as we continue to set the stage for intrusions bright future the demand for our solutions remains strong and the core tenants of our strategy remain intact with long term growth drivers in the markets we serve.
The Russia, Ukraine conflict has demonstrated that cyber security attacks are very real global threat as western governments prepare for a potential increase in malicious cyber activity.
Either from state sponsored actors in Russia, where cyber crime groups aligned with Russia.
This global conflict has increased the focus and the intensity of advanced cyber security solutions.
As cyber security concerns increasingly spillover into daily life, and with the increasing sophistication of security breaches and the need for our network solutions is more critical than ever before.
The cyber security landscape continues to change rapidly with zero day attacks, becoming more prevalent.
Our products are tested and proven to provide a critical protection layer and organization Zero Trust architecture, combining over 25 years of IP reputation of behavior with advanced real time network monitoring to protect entities from these very real threats.
Overall, we feel intrusion is only getting stronger and our ability to meet this growing demand as we expand our sales channels and partnerships launched new high demand products and improve our overall financial position.
With that said I'd now like to turn the call over to Franklin for a detailed review of our first quarter financials Franklin.
Thanks, Tony revenue for the first quarter of 2020.
Was $1 8 million, which is in line with the first quarter of 2021.
As you would've expected 2000, 2010 first quarter revenue from changing shale are significantly higher than the first quarter of 2021.
However showed revenue increases were offset by lower revenues from our legacy consulting business largely due to the timing of a continuing resolution, which expires March 11th of this year.
But the continuing resolution behind US we are already seeing benefits in both new contracts and increased contract.
First quarter operating expenses were $5 2 million, which were also in line with the first quarter of 2021 results in.
In the first quarter of 2020, we experienced large decreases in sales and marketing expenses compared to the prior year quarter.
Results from previously announced head count reductions and PR tranches.
However, these decreases were offset by increased R&D and higher than normal G&A expenses on both legal and professional services.
Net loss for the first quarter was $4 1 million or minus <unk> 21 per share compared to a net loss of $3 9 million or minus <unk> 22 cents a share for the first quarter of 2021.
As of March 31, 2022, working capital was $1 3 million.
Down from $2 1 million in the prior quarter.
Turning to the balance sheet as of March 31, 2020, we had cash and cash equivalents of $6 1 million up from $4 1 million in the prior quarter.
This includes approximately $4 7 million in net proceeds received from the first note with St <unk> capital, which was put in place in March.
We are expecting to close the second round of financing with state of the capital to provide additional net proceeds of approximately $4 7 million for the company.
As we've mentioned previously and closing on a second note is contingent on certain conditions being met one of which is being voted on at our annual shareholders meeting later this month.
Additionally, our ATM or at the market sales program remains in place and we will utilize it in the future to finance operational activities invest in shale.
As well as for potential note repayments, which may depend on current market prices.
Lastly, we are continuing to work on additional financing transaction to meet our previously announced capital raise call it $15 million to $20 million this year.
As this transaction develops and we have meaningful information will be shared half a point.
With that financial overview, I would like to turn the call back over to Tony for a few closing comments Tony.
Thanks Franklin.
In conclusion, we're moving forward with a clear vision for our future and we're focused on transforming that vision into action through compelling products and innovative strategies that position us to capitalize on the robust opportunities in our evolving cyber security marketplace.
We look forward to sharing that journey with all of you and we thank our investors for your continued support and your patience as we execute our strategy.
And as a reminder, we will be holding our annual general meeting on Tuesday may 24th at nine o'clock, a M central time in Plano, Texas.
Encourage all shareholders to participate and vote on their proxy.
As a reminder, our proxy was filed with the SEC on April 18th and can be found on our Investor Relations website.
That concludes our prepared remarks, and now I'll turn the call over to the operator for Q&A.
Thank you very much ladies and gentlemen at this time to begin the question C. J Star one on your telephone keypad and could you find your question has been answered and would like to withdraw your question. Please.
Star One again will.
We'll take our first question from Zach Cummins at BYU Securities.
Yes, Thanks, Good afternoon, Hi, Tony Hi, Frank.
Thanks for taking my questions. So let me just first of all.
Can you just talk about some of the incremental progress you've seen on the sales and marketing side here in Q2.
Some of the key drivers to get not only the better conversion, but also more shots on goal with a larger pipeline.
Sure.
Well I think I mentioned.
<unk>.
When I compare to where we ended Q1.
In Q2, we currently in the quarter isn't over yet obviously, we're seeing <unk>. The pipeline that we had at the end of Q1, which to me and this is qualified pipeline. So.
Yes.
These are sort of important metrics to nowhere, where youre headed.
And then we've also as I mentioned signed double.
In terms of revenue the deals that we did in Q1 and already we're not even we're halfway through that.
Second quarter.
To meet both of those are positive indicators of where we're headed.
And.
When we actually released the new products you will see.
Increased levels of marketing and demand Gen.
All of that so I'm pretty excited about where this is all headed.
And the response from our current customers has been really good.
Improvements that we've made in the existing products.
I will also tell you just one anecdote we had a managed.
Service provider.
With us this quarter.
And that customer deployed to one of their customers.
And in the first week, we stopped a major attack.
<unk>.
Got past their existing firewall.
Shield stopped it.
We got a very enthusiastic call from both the customer and from the managed service provider.
<unk> is how much they liked and appreciated shield.
That felt really good that we could have that kind of impact that quickly on a brand new customer and it's pretty typical of what we're experiencing now as we get more product out into the marketplace. So I am pleased with the direction, obviously the volume needs to.
Ramp up pretty significantly, which we think it will with with the new products in particular.
Understood Thats Great day here.
And since you mentioned that the new products.
Have you had other customers.
That's both the cloud and the endpoint product and its beta form right now or is that going to be put on hold until the demo here in the coming weeks and then second question around that.
Both of these are generally available.
One of them additional training or sounds like incremental marketing programs.
Planning to really drive faster adoption rate for these new products.
We haven't tested with customers.
At any scale we have.
Couple of inside the tent customers that.
No, where we're going with this and who.
Understand what we're doing from a technology standpoint, theyre pretty excited about getting their hands on it but but we've not done any general deployment yet.
That will happen in.
<unk>.
Q2 here as we have demo capability.
And the product just a little bit more baked in they are currently at the moment as I mentioned on the call I've been using the endpoint.
Internally here and I have shown that to a couple of customers and their enthusiasm is pretty high on that one.
In particular as we've.
As we've demo that so.
Sure.
High hopes for both of these as we get them into the marketplace.
And I'm sorry, what was your second question.
Yes.
Yes second question is really around once we move closer into general availability I mean, what sort of additional training is going to be required for or your channel partners and also it seems like youre going to put some incremental.
It works to marketing programs for this.
Sure so.
During Q1, we spent a lot of effort to get the channel ready for the existing product and understanding what our technology is how it works.
So there will be some incremental trade.
Training required for for both.
Of the new products, but it's not a.
100% re duplicative effort it'll be incremental to what they already do and now.
And in particular, one of the things that we're focused on is making both of these new products much easier to demo much easier to try and do a POC and then ultimately much easier to buy once the customer makes a buying decision today.
As we've talked before.
Deploying our hardware.
Lions behind the firewall requires usually some heavy lifting that we hope to avoid.
At least for demo and POC purposes.
Going forward. So we think that this should speed up the sales cycle.
And lighten our load in terms of Poc's going forward.
Understood well thanks for taking my question then best of luck with the rest of Q2.
Thanks.
Thank you and just a reminder, Jim on Star Wars for any questions. We'll go next to Ed Woo Edison need capital.
Yes, congratulations on the quarter, what the supply chain issue is inflation and worker shortages has that been.
Packing your product development at all all your sales cycles.
No not that I can see at the moment.
We've been very fortunate in terms of stability in our staffing and.
From that perspective.
Have not seen any impact currently.
The supply chain issues as I mentioned briefly on the call really only are impacting this high throughput.
Fail over solution that we've had under development.
It's.
Unclear at this particular point, we are trying to get.
More clarity from our suppliers.
If they were impacted and what that impact might be.
But at this point, we just don't have an answer to that question. So.
Stay tuned, we'll let you know when.
When we know, but so far knock.
Knock wood I think were better.
Better shape.
Then many others apparently are on both fronts.
Great and my last question is you know obviously.
Cyber security and hacking is gaining a lot of press have you noticed any change of competition and new entrants coming into the market.
Not so much new entrants what we have seen.
Quite frankly is a lot more inbound.
Activity.
Whenever you have international news.
And these topics in the press to the degree that they have been certainly over the last.
Two months or so.
It.
Creates an environment that is conducive and positive for us in terms of.
How we can help organizations. So we have seen an increase in inbound interest in.
I do find that.
People are taking these kinds of conversations far more seriously than they might have.
Without that external stimulus so.
I believe that in the long run.
Even in the short run that translates to positive things for for intrusion.
Great well, thanks for answering my questions and I wish you guys. Good luck. Thank you. Thank you.
Yeah.
Thank you and just a final reminder, ladies and gentlemen star <unk> further questions. This afternoon.
Okay.
And gentlemen, it appears we have no further questions. This afternoon, Mr. Scott I'll turn things back to you for any closing comments.
Well thank you.
Hey, I really appreciate.
The questions today and the interest in intrusion.
I know this has been a long journey for some of our shareholders and we all certainly would hope that the share price was significantly higher than it is today.
I know that frustrates, everyone, and especially our long term shareholders.
That said I think we are poised to.
Renew interest in intrusion and I think we're on the doorstep of.
A bright new era for for intrusion going forward.
I look forward to sharing our second quarter results with you and I do appreciate your patience and your perseverance with us so far.
And I hope that that can be rewarded in the future I am very excited about where we're going in.
I appreciate everybody.
Everybody's interest in sharing your questions with us today. Thanks.
Thank you Mr. Scott, Ladies and gentlemen that will conclude the insurance Incorporated's first quarter 2022 earnings conference call.
You also much for joining us and wish you all a great afternoon Goodbye.
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