Q1 2024 VerifyMe Inc Earnings Call
Operator: Good day, and welcome to the VerifyMe First Quarter 2024 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your telephone keypad. Please note that this event is being recorded. I would now like to turn the conference over to Nancy Meyers, CFO. Please go ahead.
Good day and welcome to the verify me first quarter 2024 financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
Conference Specialist: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad.
Please note this event is being recorded.
I would now like to turn the conference over to Nancy Meyers CFO. Please go ahead.
Nancy L. Meyers: Thank you and good morning everyone. Thank you for joining us today for our earnings call presentation. On the call today, I'm joined by Adam Stedham, CEO and President, who will give an operations and strategic update. 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 answer 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 statements caption and in 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 Adam Stedham for some opening remarks.
Nancy L. Meyers: Thank you and good morning, everyone. Thanks for joining our earnings call presentation.
Adam H. Stedham: On the call today, I'm joined by Adam <unk>, CEO, and President, who will give an operations and strategic update.
Speaker Change: Following managements presentation, we will have a Q&A session.
Speaker Change: I would like to bring your attention to the.
Adam H. Stedham: The note on forward looking statements on slide three days.
Adam H. Stedham: Today's presentation and the answers to questions include forward looking statements it shouldn't be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward looking statements caption and under risk factors of the company's annual report on.
Adam <unk>: Form 10-K, and quarterly reports on Form 10-Q.
Adam H. Stedham: Now I'll turn the call over to Adam for some opening remarks.
Adam H. Stedham: Thank you Nancy.
Adam H. Stedham: Nancy Meyers, and welcome, everyone. I'm pleased to report that in Q1 2024, we realized an increase in year-over-year revenue and a significant improvement in gross profit, gross margin percentage, and adjusted EBITDA. It's noteworthy that this is now the third consecutive quarter of positive adjusted EBITDA. And even more meaningful, we're experiencing an increase in our sales pipeline. We previously announced that we anticipate our H2 2024 growth rate will exceed our H1 growth rate.
Adam: Welcome everyone.
Adam: I'm pleased to report that in Q1, 'twenty 'twenty four we realized an increase in year over year revenue.
Adam: And a significant improvement in gross profit gross margin percentage and adjusted EBITDA.
Adam H. Stedham: Noteworthy this is now the third consecutive quarter of positive adjusted EBITDA.
Adam: And even more meaningful we're experiencing an increase in our sales pipeline.
Adam: We previously announced that we anticipate our age to 2024 growth rate will exceed our H one growth rate. We continue to believe this is the trend and the increases in sales pipeline are a key enabler of that growth.
Adam H. Stedham: We continue to believe this is the trend, and the increases in sales pipeline are a key enabler of that growth. Q1 2024 Adjusted EBITDA did not convert efficiently into cash flow from operations in Q1, and that's primarily due to the timing of working capital items.
Speaker Change: Q1, 'twenty 'twenty four adjusted EBITDA.
Adam: Not convert efficiently into cash flow from operations in Q1, and that's primarily due to the timing of working capital items. We continue to anticipate that we'll have positive cash flow for 2024 as the timing of these items balance out and we continue to experience.
Adam H. Stedham: We continue to anticipate a positive cash flow for 2024 as the timing of these items balances out, and we continue to experience year-over-year growth. As a company with no net debt that is generating cash with meaningful growth prospects, I think our current valuation represents a significant opportunity for our shareholders. At the end of Q1 2024, we had $2.8 million in cash and only $2.4 million in debt, and this includes the convertible note, which we anticipate will likely get converted into stock rather than be repaid in cash.
Adam: Year over year growth.
Speaker Change: As a company with no net debt that is generating cash with meaningful growth prospects.
Speaker Change: I think our current valuation represents a significant opportunity for our shareholders at the end of Q1 2024, we had $2 8 million of cash and only $2 4 million in debt are.
Speaker Change: This includes the convertible note, which we anticipate will likely get converted into stock rather than being repaid in cash.
Adam H. Stedham: At this point, I'll touch on our capital strategy. We continue to have our announced buyback program in place, and we continue to evaluate our strategy around re-purchase and share, thus far. In 2024, the company has repurchased minimal shares.
Speaker Change: At this point I'll touch on our capital strategy, we continue to have our announced buyback program in place and we continue to evaluate our strategy around repurchasing shares.
Speaker Change: Thus far.
Speaker Change: In 2024, the company has repurchased minimal shares we continue to monitor all available options to utilize our capital to maximize shareholder value.
Adam H. Stedham: We continue to monitor all available options to utilize our capital to maximize shareholder value. So let's shift the conversation to our two operating sectors. Q1 2024 improvement up and down the income statement is the result of our focus on creating the foundation for the company throughout 2024. We focus on operational efficiency and our go-to-market strategy for our pari-ship business within the precision logistics segment. We vertically integrated the TrustCodes technology stack with all of our existing customers in our authentication segment, as well as redefined our go-to-market strategy for both our traceability products as well as our ETH products.
Speaker Change: So let's shift the conversation to our two operating segments.
Speaker Change: Q1, 2024 improvement up and down the income statement as a result of our focus on creating the foundation for the company throughout 2020.
Speaker Change: We focus on operational efficiency and our go to market strategy for our parachute business within the precision logistics segment.
Speaker Change: We vertically integrate as a trusted technology stack with all of our existing customers and our authentication segment.
Speaker Change: As well as redefining our go to market strategy for both our traceability products as well as our products.
Adam H. Stedham: Now looking at precision was just, this segment generated $5.6 million in revenue in Q1 of 2024 versus $5.4 million in revenue in Q1 of 2023. As we look across the marketplace, partial shipping volumes with the major shippers are down in 2024 versus 2023.
Speaker Change: Now looking at precision that legit.
Speaker Change: This segment generated $5 6 million of revenue in Q1 of 'twenty 'twenty four versus $5 4 million in revenue in Q1 2023.
Speaker Change: As we look across the marketplace parcel shipping volumes with the major shippers are down in 2024 versus 2023.
Adam H. Stedham: We're pleased that, due to multiple factors related to our differentiated offering, we continue to experience revenue growth in this environment. We believe this environment provides a good opportunity to add new customers, as well as increase our share of wallet with existing customers. So as we look at the business, we had almost 3% more customers ship packages in Q1, 2024 versus Q1, 2023. With that said, our same customer shipping volumes were down about 2% in Q1 2024 versus Q1 2023.
Speaker Change: We're pleased that due to multiple factors related to our differentiated offering we continue to experience revenue growth in this environment.
Speaker Change: We believe this environment provides a good opportunity to add new customers as well as increase our share of wallet with existing customers.
Speaker Change: And as we look at the business, we had almost 3% more customers ship packages in Q1, 'twenty 'twenty four versus Q1 2023.
Speaker Change: With that said our same customer shifting volumes were down about 2% in Q1, 2024 versus Q1, 2020 three.
Adam H. Stedham: Therefore, we're in a market in which our strongest opportunity to grow our revenues is by expanding our customer base, so we're focusing our efforts to add new customers in the region between Maine and Pennsylvania. We added a new additional sales representative in May, and we're expected to add two additional sales resources in June. We believe our plans of expanding our sales force with a targeted geographic approach will create the most value for the company.
We: So therefore, we're in a market in which our strongest opportunity to grow our revenues is by expanding our customer base.
Speaker Change: We're focusing our efforts to add new customers in the region between Maine and Pennsylvania.
Speaker Change: We added a new additional sales representative in May and we're expected to add two additional sales resources in June.
Speaker Change: We believe our plans of expanding our sales force with a targeted geographic approach will create the most value for the company.
Adam H. Stedham: Our successes and lessons learned from this year will guide plans related to geographic expansion in 2025, so we're pleased with the efficiencies and improved gross margin percentages we've achieved in the precision logistics segment. But we still believe that we have the capacity to further increase our revenues without an associated increase in operating costs. This leverage should enable us to grow revenues and maintain our margin profile, even if softer overall partial shipping volumes create pricing pressure in the industry this year. So now, let me shift over to our authentication segment.
Speaker Change: Our successes and lessons learned from this year, we'll guide plans related to geographic expansion in 2025.
Speaker Change: So we're pleased with the efficiencies and improved gross margin percentages, we've achieved in the precision logistics segment.
Speaker Change: But we still believe that we have the capacity to further increase our revenues without an associated increase in operating cost.
Speaker Change: This leverage should enable us to grow revenues and maintain our margin profile, even yeah softer overall parcel shipping volumes create pricing pressure in the industry. This year.
Speaker Change: So now let me shift over to our authentication segment.
Adam H. Stedham: After spending much of last year on internally focused initiatives, I'm pleased with the pipeline expansion in this segment. The authentication segment generated $150K in revenue in Q1 2024 versus $250K in Q1 2023. We anticipate the quarterly revenue growth for this segment to increase meaningfully each quarter of this year. We have multiple sales opportunities in the pipeline related to our new integration with Amazon Transparency. We're refining our sales model and developing a better understanding of the sales cycle associated with this specific service.
Speaker Change: After spending much of last year on internally focused initiatives I am pleased with the pipeline expansion in this segment. The authentication segment generated 150 K revenue in Q1 2024 versus 250 K in Q1 2023, we.
Speaker Change: We anticipate the quarterly revenue growth for this segment to increase meaningfully each quarter of this year we.
Speaker Change: We have multiple sales opportunities in the pipeline related to our new integration with Amazon transparency.
Speaker Change: We're refining our sales model and developing a better understanding of the sales cycle associated with this specific service.
Adam H. Stedham: So we continue to believe our relationship with Amazon creates a significant opportunity to create value for Amazon, our mutual customers, and consumers of our customers' brands, and most importantly, VerifyMe shareholders. In addition to the Amazon relationship, we continue to see positive trends for our APAC business. Strategic Relationships and Inksale generated 5% revenue growth in APAC in Q1, and we anticipate continued growth throughout 2024.
Amazon: So we continue to believe our relationship with Amazon creates a significant opportunity to create value for Amazon.
Amazon: Our mutual customers.
Amazon representative: And consumers of our customers' brands and most importantly verified these shareholders.
Speaker Change: In addition to the Amazon relationship we continue to see positive trends for our APAC business.
Speaker Change: Strategic relationship and any sales.
Speaker Change: We generated 5% revenue growth in APAC in Q1, and we anticipate continued growth throughout 2024.
Adam H. Stedham: We're currently working with our strategic partners to define marketing plans to highlight how our technology adds value to their equipment. And then, As for Inc., in Q1, we attended the DSCOOP conference in Indianapolis. DSCOOP is the community of 16,000 Hewlett Packard industrial print and large format customers and partners.
strategic partners: We're currently working with our strategic partners to find marketing plan to highlight how our technology adds value to their equipment.
Amazon: Then ASP.
Amazon: Aspirin in Q1, we attended the <unk> conference in Indianapolis Geese Scoop is the community of 16000, Hewlett Packard industrial trends and large format customers and partners.
Adam H. Stedham: Participation in this conference is a part of the new go-to-market strategy for our Inc. products that we discussed with you at Analysts' Day. We believe this conference was a good success for us. I look forward to our future earnings calls and sharing details associated with converting our current pipeline into sales. And we continue to also believe the authentication segment has growth opportunities related to food and agriculture traceability. This traceability aligns with the GS1 standards.
US I: Participation in this conference as a part of the new go to market strategy for our ink products. We discussed with you at the Analyst Day. We believe this conference with a good success for US I look forward to our future earnings calls and sharing details associated with converting our current pipeline into sales.
Amazon: Yes.
US I: And we continue to also believes the authentication segment has growth opportunities related to food and agricultural trade stability.
Speaker Change: This traceability aligns to the G. S. One standards. So in June the companies participating in the G. S. One conference in Orlando. We believe this conference will create sales opportunities just as the Deschool conference created ink sales opportunities.
Adam H. Stedham: So in June, the company is participating in the GS1 conference in Orlando. We believe this conference will create sales opportunities just as the DSCOOP conference created ink sales opportunities. So, at this point, I'll turn the call back over to Nancy Meyers, our CFO, and she'll provide more detailed financial information.
Speaker Change: So at this point I'll turn the call back over to Nancy Meyer, our CFO and she will provide more detailed financial information.
Speaker Change: Okay.
Amazon: Thank you Adam.
Nancy L. Meyers: First quarter revenue increased by 2% to $5.8 million versus the prior year of $5.7 million. The precision logistics revenue increased by 4% from $5.4 million to $5.6 million. Authentication revenue decreased from $0.2 million to $0.1 million, as a large order from Q1 2023 has slipped into Q2 and Q3 for 2024.
Nancy L. Meyers: First quarter revenue increased by 2% to five 8 million versus prior year of $5 7 million and precision logistics revenue increased by 4% to five 4 million to $5 6 million.
Nancy L. Meyers: But then it came from revenue decreased from $1 2 million $10 1 million and a large order from Q1 2023 has slipped into Q2 and Q3 for 'twenty 'twenty four.
Nancy L. Meyers: As Adam mentioned, our pipeline is growing in this segment, and we anticipate growth in Q2 and through the remainder of 2024. Growth profit increased by 0.7 million or 49% to 2.3 million in Q1 2024 versus 1.5 million in Q1 2023. As a percentage of revenue, gross profit increased to 39% in 2024 versus 27% in 2023. The year over year increase in gross profit is mainly due to the shift in customer mix and service offerings in our precision logistics segment, as well as process improvements the company has made.
Nancy L. Meyers: As Adam mentioned, our pipeline is growing in this segment and we anticipate growth in Q2 and through the remainder of 2024.
Nancy L. Meyers: Gross profit increased five point 70 million or 49% to $2 3 million in Q1, 'twenty 'twenty four versus $1 5 million in Q1, 'twenty two 'twenty three.
Nancy L. Meyers: As a percentage of revenue gross profit increased 39% in 2024 versus 27% in 2023.
Adam: The year over year increase in gross profit, mainly due to the shift in customer mix and service offerings in our precision logistics segment as well as process improvements the company has made.
Nancy L. Meyers: The growth profit from the prior year has been adjusted and has been decreased by 4% from $1.8 million to $1.5 million. This was to better align our variable direct operating costs related to our service center in precision logistics as they are directly related to providing service to the customer that generates revenue. We've internally reorganized and are able to clearly identify these costs. While we believe there are economies of scale as we continue to grow, we understand these costs could fluctuate. For Q2 and Q3 of 2024, we anticipate our gross margin to remain relatively consistent.
Speaker Change: The gross profit from prior year have been adjusted and have been decreased by 4% from $1 8 million to $1 5 million.
Speaker Change: This was to better align our variable direct operating costs related to our service center in precision logistics as they are directly related to providing service to the customer they generate revenue.
Speaker Change: We have internally reorganized and are able to clearly identify these costs.
Speaker Change: Well, we believe there are economies of scale as we continue to grow we understand these costs could fluctuate.
Speaker Change: Yeah.
Speaker Change: For Q2, and Q3 of 'twenty 'twenty four we anticipate our gross margin to remain relatively consistent.
Nancy L. Meyers: When you review our operating costs component of the Statement of Operations, you will see we have added a new line item for segment management and technology. Additionally, we have reclassified our operating costs to provide visibility of those costs that are directly related to our two segments in line with new accounting standards. These costs are further broken out between the two segments in a footnote of our 10-Q. This is in line with how the segments are being reviewed for performance, and the allocation of resources is managed.
Speaker Change: When you review, our operating cost component of the statement of operations you will see it added a new line item for segment management and technology.
We: We have reclassified our operating costs provide visibility of those costs that are directly related to our T. Sadly.
Speaker Change: This new accounting standard these.
Speaker Change: These costs are further broken out between the two segments in a footnote of our 10-Q.
Speaker Change: This is in line with how the segments are being reviewed for performance and allocation of resources are managed.
Nancy L. Meyers: General and administrative expenses now include those costs that are shared across both segments as well as public company costs. Segment management and technology expenses increased by 5.2 million to 1.3 million in Q1 2024 versus 1.1 million in Q1 2023, primarily as a result of trust codes being included for the full quarter in 2024. General and administrative expenses decreased by $0.3 million to $1.1 million in Q1 2024 versus $1.4 million in Q1 2023.
Speaker Change: General and administrative expenses now lets say those costs that are shared across both segments as well as public company costs.
Speaker Change: They've moved management and technology expenses increased I.
Speaker Change: <unk> 2 million to $1 3 million in Q1, 2020 or versus $1 1 million in Q1, 'twenty two 'twenty three.
Speaker Change: I'm merely as a result of trust codes being included for a full quarter in 2024.
Speaker Change: General and administrative expenses decreased by <unk> 3 million to $1 1 million in Q1, 2024 versus $1 4 million in Q1 2023.
Speaker Change: The decrease primarily primarily relates to severance expense and one time professional fees for the trust closed acquisition in Q1, 2023 that did not recur.
Nancy L. Meyers: The decrease primarily relates to severance expense and one-time professional fees for the trust code acquisition in Q1 2023 that did not recur. Sales and marketing expenses decreased by $0.1 million to $0.4 million in Q1 2024 versus $0.5 million in Q1 2023. The decrease is primarily related to reducing the number of employees and consultants in the authentication segment.
Speaker Change: Sales and marketing expenses decreased $5 1 million $2 4 million in Q1 2024 versus $5 million in Q1 2023.
Speaker Change: The decrease is primarily related to a reduction in employee doesn't get adult in the authentication segment.
Nancy L. Meyers: Our net loss for the quarter improved by $1 million to a loss of $0.6 million, or $0.05 per diluted share, versus $1.6 million in Q1 2023 and a loss of $0.17 per diluted share. Adjusted EBITDA increased by $0.6 million to a positive $0.1 million for the first quarter of 2024. The last slide is our balance sheet as of March 31, 2024. Our cash as of March 31, 2024 is $2.8 million, a decrease of $0.3 million from $3.1 million on December 31, 2023.
Speaker Change: Our net loss for the quarter improved by 1 million to a loss of <unk> 6 million or <unk>.
Speaker Change: Five cents per diluted share versus one 6 million in Q1, 2023 and a loss of 17 cents per diluted share.
Speaker Change: Our adjusted EBITDA increased by 26 million to a positive <unk> 1 million for the first quarter of 'twenty 'twenty four.
Speaker Change: On the last slide is our.
Speaker Change: Balance sheet as of March 31, 2024, our cash as of March 31st 2024, it's $2 8 million a.
Speaker Change: Decreased <unk> 3 million from $3 1 million on December 31st 2023.
Speaker Change: During the first quarter of 'twenty 'twenty four our use of cash included $22 million in repayment of debt and interest.
Nancy L. Meyers: During the first quarter of 2024, our use of cash included $0.2 million in repayment of debt and interest. Due to the seasonality of our precision logistics segment, our AR, unbilled, and accounts payable are much higher at year-end compared to the other three quarters. As of March 31, 2024, we have $1.3 million remaining on our loan and $1.1 on our convertible note. There are no borrowings under our line of credit, and we have $1 million available to us. With that, I would like to turn the call back to Adam.
Speaker Change: It is the seasonality of our precision logistics segment, our a R. Unbilled and accounts payable are much higher at year end compared to the other three quarters.
Speaker Change: As of March 31st 'twenty 'twenty, four we have $1 3 million remaining on our small and one one on a convertible note. There are no borrowings under our line of credit and we had $1 million available to us.
Ed: With that I would like to turn the call back to Ed.
Ed Wilson: Thank you Nancy.
Adam H. Stedham: Q1 was my third quarter with the company, and I'm pleased to be at the pivot point from transformation to growth. And most construction projects start by digging a hole, and it's always satisfying to see the structure rise from the ground. It's also exciting that the process begins to speed up at that point. I am pleased that, due to the hard work of the team, VerifyMe has generated positive adjusted EBITDA each quarter that I've been with the company.
Ed Wilson: Q1 was my third quarter with the company.
Ed: I'm pleased to be at the pivot point from transformation to growth.
Ed Wilson: Yeah, most construction projects they start by digging a hole and it's always satisfying to see the structure rise from the ground. It's also exciting that the process begins to speed up at that point.
verify me: I am pleased that due to the hard work of the team verify me has generated positive adjusted EBITDA each quarter that I've been with the company.
Adam H. Stedham: I look forward to the next quarterly call and continuing to share our success and share more about the upcoming revenue growth. But for now, let's turn the call over to questions. We will now begin our questions.
Speaker Change: I look forward to the next quarterly call and continuing to share our success and share more about the upcoming revenue growth, but for now let's turn the call over for questions.
Operator: We will now begin our question and answer session. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And the first question comes from Michael Petusky from Barrington Research. Please go ahead.
Speaker Change: We will now begin our question and answer session to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And the first question comes from Michael Pitofsky from Barrington Research. Please go ahead.
Michael John Petusky: Hey, good morning. I may have missed this. What was the percentage of growth or negative comp in each of the segments, please?
Michael John Petusky: Hi, Good morning, Yeah, I mean I may have missed this what was it what was the percentage.
Michael John Petusky: Sort of growth or negative comp.
Michael John Petusky: Each of the segments. Please.
Operator: I'm sorry; say that again.
Michael John Petusky: I'm, sorry, say that again, the percentage revenue growth or or or negative comp in each of the segments for the quarter. Okay. Yes, So decision logistics increased by 4%.
Michael John Petusky: The percentage revenue growth or negative comp in each of the segments for the quarter.
Nancy L. Meyers: Okay, yeah, decision logistics increased by 4%, and Authentication went down. It went from 0.2 to 0.1 million.
Speaker Change: And authentication went down at one point to the point 1 million.
Nancy L. Meyers: What's the other percentage, by any chance?
Speaker Change: Do you have the percentage by any chance.
Nancy L. Meyers: I don't know off the top of my head.
Speaker Change: I don't off top my head, Okay, alright, so I guess.
Adam H. Stedham: All right. So, I guess... Let me ask you a question about precision logistics. Adam, are you guys seeing certain industries that are sort of holding up in terms of shipping versus others that maybe are sort of the more problem areas? I understand you're dealing with a difficult macro environment, but I'm just curious if there are parts of your business that are holding up, uh... or growing better than some others that maybe aren't. So, we have a strong concentration in life sciences, as well as products that are a little bit more on the expensive side.
Adam H. Stedham: The end consumer of those products has a tendency to be a little bit more affluent. And so, those two areas and those two markets are a little bit more resilient, a little less affected by economic conditions and slowdowns. So, that's what we think, that's what's giving us the strength that we're seeing right now. We do have other products that are aimed at the more general marketplace, and that's where we're seeing the slowdown in those, in maybe baked goods and some of our less expensive products that we ship.
Speaker Change: Well, let me let me ask this.
Speaker Change: Around precision logistics or Adam or are you guys seeing certain certain industries that are sort of holding up in terms of shipping versus others that maybe are sort of the more problem here and I understand you're dealing with difficult macro environment I'm. Just curious if there are parts of your business that are holding up.
Speaker Change: We're growing better than maybe some others that maybe are subpar or.
Speaker Change: Our being more impacted.
Speaker Change: So we have a strong concentration in life sciences as well as <unk>.
Adam: Products that they have that are a little bit more on the expenses side they.
Adam: The end consumer of those products has a tendency to be a little bit more affluent.
Adam: And so those two areas in those two markets are little bit more resilient little less impacted by economic conditions and slow down. So that's what we think that's what's giving us the strength that we're seeing right now we do have other.
Speaker Change: Other products that are aimed at the more general market place and that's where we're seeing the slowdown.
Speaker Change: Is it knows and it maybe baked goods and some of our less expensive products that we ship.
Michael John Petusky: Alright, and I know with the investor, well, I think with the investor day and then affirmed with the 4th quarter conference call. I think you guys have been hoping for double-digit top-line growth in both segments. Obviously, correct.
Speaker Change: Alright, and I know I'm, a with the investors.
Speaker Change: At the Investor Day, and then affirmed with the fourth quarter Conference call. I think you guys are.
Speaker Change: <unk> had been hoping for double digit topline growth in both segments. Obviously correct. This is a pretty tough quarter for a great quarter from a sort of margin perspective, but not a great quarter from a topline growth perspective or are you guys.
Adam H. Stedham: This is a pretty tough quarter from a sort of margin perspective, but not a great quarter from a top-line growth perspective. Are you guys, is that more of an aspirational goal at this point? Or do you still feel comfortable?
Michael John Petusky: To me, it feels like maybe or maybe possibly you're tracking behind that. But maybe not. And I don't I'm not. I understand that the second half is supposed to be better than the first half. But it does feel like this is possibly maybe tracking behind. But let me know.
Speaker Change: Is that more of an aspirational goal at this point or do you still feel comfortable to me it feels like maybe or maybe possibly you're tracking behind that are relevant, but maybe not and I don't I'm not I understand that second half is supposed to be better than the first half, but it does feel like this is possibly maybe tracking behind but let me know.
Adam H. Stedham: No. So actually, we do feel comfortable with it. One of the things that we pointed out is that we were adding two additional salespeople, and so those two additional salespeople were not initially part of the plan at that time. So we believe that we will hit the revenue growth target. The way we'll hit the revenue growth target is by making additional investments in sales resources. And we've freed up room in the income statement to make those investments in sales resources.
Speaker Change: No I'm.
Speaker Change: So actually we do feel comfortable with it one of the things that we pointed out is that we're adding two additional salespeople.
Speaker Change: And so those those two additional salespeople were not initially part of the plan at that time. So we believe that we will hit the revenue growth targets. The way, we'll hit the revenue growth target is by making additional investments in sales resources and we freed up some room in the income.
Speaker Change: Statement to make those investments in the sales resources. So we continue to believe that we will hit the double digit revenue growth in each segment as well as the company overall and it will be weighted towards H two versus H, one keep in mind, a very large percentage of our revenue is.
Adam H. Stedham: So we continue to believe that we will hit double-digit revenue growth in each segment, as well as the company overall, and it will be weighted towards H2 versus H1. Keep in mind that a very large percentage of our revenue is generated in the fourth quarter for precision logistics. So naturally, the business cycle for us gives us that opportunity to see a much higher growth rate in H2 than H1.
Speaker Change: Generated in the fourth quarter for precision logistics, so naturally the business cycle for us gives us that opportunity to see a much higher growth rate in age to then each one.
Michael John Petusky: Can I just ask, your internal assumptions around the market, do they assume that the macro sort of improves in the second half?
Speaker Change: Can I just ask are your internal assumptions around the market does it assume does it assume that the macro sort of improves in this in the second half.
Adam H. Stedham: No, I think it assumes that the macro does not significantly erode in the second half. Status quo is the assumption, and if there's an improvement, that's positive. If there's an erosion, that's negative.
Speaker Change: No I think it assumes that the macro does not significantly erode in the second half status quo is the assumption.
Speaker Change: And if there is an improvement that's positive if theres an erosion that's negative sure.
Michael John Petusky: All right. Very good. Thank you so much. I appreciate it.
Speaker Change: Right very good. Thank you so much I appreciate it.
Speaker Change: Thank you.
Operator: Again, if you would like to ask a question, please press star than one. The next question comes from Jack Vanderaard from Maxim Group. Please go ahead.
Speaker Change: Again, if you would like to ask a question. Please press Star then one.
Speaker Change: The next question comes from Jack Vander <unk> from Maxim Group. Please go ahead.
Jack Vander Aarde: Okay, great. Hi Adam.
Speaker Change: Okay, Great Hi, Adam.
Speaker Change: Exactly.
Jack Vander Aarde: I'm doing I'm doing well. It looks like you're three for three with positive adjusted EBITDA as CEO, so that's great to see.
Speaker Change: I'm doing I'm doing well it looks like your are your three for three with with positive adjusted EBITDA as CEO. So that's great to see.
Speaker Change: A couple of questions.
Speaker Change: It's good to see the growth in the precision logistics business tracking along.
Speaker Change: In terms of authentication you mentioned the pipe on strengthening and you expect revenue growth going forward, just maybe a couple of things.
Speaker Change: Yeah recent revenue mix in near term off education revenue growth do you can you just split this between maybe your expectations of the trustco business versus maybe the ink business in India. The two conferences you mentioned you expected what would you hope to capture from these conferences are walking away what will set you up for some <unk>.
Jack Vander Aarde: Just a couple questions. You know, it's good to see the growth in the precision logistics business tracking along. In terms of authentication, you mentioned the pipe on strengthening, and you expect revenue growth going forward. Just maybe a couple things. Yeah, recent revenue mix in your term authentication revenue growth, do you split this between maybe your expectations of the trust code business versus maybe the ink business at the two conferences you mentioned? Do you expect to, what do you hope to capture from these conferences when walking away? Will this set you up for some orders to drive backup growth? I absolutely agree.
Speaker Change: There's to drive back half growth. Thanks.
Adam H. Stedham: Absolutely, great question. So we expect to see growth both in the ink segment as well as in the codes or the ink portion of our authentication segment as well as in the codes. But when we look at it, what we're finding is the sales cycles are longer than we've expected. So you have kind of a queue in your pipeline. So our pipeline is building and building. I would have previously expected that some of that pipeline would have converted already.
Speaker Change: Absolutely great question, So we expect to see growth both.
Speaker Change: Both <unk> and the ink segment as well as in the the codes are the portion of our authentication segment as well as the codes are.
Speaker Change: In.
Speaker Change: When we look at it what we're finding is the sales cycles are longer than we've expected. So you have kind of a queuing in your pipelines, where our pipeline is building and building I would've previously expected that some of that pipeline would have converted.
Speaker Change: Already.
Adam H. Stedham: But what we're experiencing is a longer sales cycle on that pipeline. But importantly, we are not experiencing a lower conversion rate than we expected. So it's not as if we're losing more deals than we expected to lose. The sales cycles are just longer. And when we look at the expansion into the Amazon environment, that's a more complicated sale with a little longer sales cycle that involves more players on the other side, as well as within our go-to-market strategy for ink.
Speaker Change: But what we're experiencing is a longer sales cycle on that pipeline. What now importantly, we're not experiencing a lower conversion rate than we expected. So it's not as if we're losing more deals than we expected to lose the sales cycles are just longer and when we look at.
Speaker Change: The expansion into the Amazon environment, that's a more complicated sale with a little longer sales cycle that involves more players on the other side as.
unknown: As well as within our go to market strategy for Inc. If you look at where we're targeting the ink sales now does have a tendency to be longer sales cycle. So I think that that's been the biggest aha for me from an authentication business.
Adam H. Stedham: If you look at where we're targeting the ink sales now, those have a tendency to have longer sales cycles. So I think that's been the biggest aha for me from an authentication business perspective, the fact that the sales cycles do take a little longer than I had previously anticipated they would.
unknown: Perspective.
Speaker Change: Is the fact that the sales cycles do take a little longer than I had previously anticipated they would.
Jack Vander Aarde: Okay, that makes sense. And then, you know, maybe if I switch gears, again, gross margin was another bright spot. You know, it sounds like you expect gross margins to be fairly consistent going forward. But you know, just given what I believe is your expectation for ramping authentication sales in general, it feels to me like there would be potential upside to that gross margin, just given the margins with that revenue stream. Can you just speak to that a bit? Is that a conservative assumption to have gross margins around the current quarter? Or, what are your thoughts there?
Speaker Change: Okay.
Speaker Change: Makes sense and then maybe if I switch gears again gross margin was it was another bright spot.
Speaker Change: You know it sounds like you expect gross margins to be fairly consistent going forward, but you know just given what I believe is your expectation for ramping off application sales in general.
Speaker Change: It feels to me like there would be potential upside to that gross margin I'm just given the margins with that revenue stream can you just speak to that a bit is that a conservative assumption to have gross margins around the current quarter or what are your thoughts there. Thanks.
Speaker Change: So well actually.
Adam H. Stedham: So, gross margin could do a few things. If we start to experience pricing pressure, then we plan on responding to that pricing pressure appropriately in order to continue to hit our revenue target for the year. As a result of that, we could possibly see some gross margin erosion. With that said, we believe that we have capacity in the organization below gross margin to add revenue without incremental cost. So, even if we did have to lower our pricing some to hit our sales target, we believe our bottom line margin percentage should hold true because we might see gross margin go down slightly as a percentage of revenue, but our cost below gross margin as a percentage of revenue would go down, it's offsetting, and we would maintain our bottom line margin profile. So, that's the scenario that would play out if we have to adjust prices in response to pricing pressures overall in the marketplace. On the other hand,
Speaker Change: So gross margin could do a few things is if we start to experience pricing pressure than we plan on responding to that pricing pressure appropriately in order to continue to hit our revenue target for the year as a result of that.
Speaker Change: We could possibly see some gross margin erosion with that said, we believe that we have capacity in the organization below gross margin to add revenue without.
Speaker Change: Without incremental costs. So even if we did have to lower our pricing some to hit our sales targets. We believe our bottom line margin percentage should hold true because we might see gross margins go down slightly as a percentage of revenue, but our costs below gross margin is up.
Speaker Change: Does your revenue or would go down it's offsetting and we'd maintain our bottom line margin profile. So that that's the scenario that would play out if we have to adjust pricing in response to to pricing pressures overall in the marketplace on the other hand.
Jack Vander Aarde: If the economy does maintain the status quo, and we don't see an increase in pricing pressure, and we're able to maintain established growth with our sales force, and we're able to do that at our current price point, we could see gross margin improve some in the second half of the year. So obviously, when I say that, within your models, you have to adjust for the fact that Q4 has a different margin mix than the other three quarters.
Speaker Change: If the economy does maintain the status quo and we don't see an increase in pricing pressure and we're able to maintain establish grows with our sales force and we're able to do that at our current price points, we could see gross margin improve.
Speaker Change: Some in the second half of the year.
Speaker Change: And obviously when I say that E. Within your models you have to adjust for the fact that Q4 has a different.
E.: Margin mix than the other three quarters. So that's one thing you need to think about and adjust for it in your model.
Jack Vander Aarde: So that's one thing you need to think about and adjust for in your model. Secondly, our authentication business has a much higher gross margin than our precision logistics business. So if authentication grows in the way that we expect it to, you could imagine that as the product or the segment mix between authentication and precision logistics starts to be a little more balanced, and we start to get a little bit more revenue from authentication compared to precision logistics, that would adjust the overall gross margin profile as well.
E: Secondly, our authentication business has a much higher gross margin than our precision logistics business. So if the authentication grows in the way that we expected to you could imagine that as the product, whereas the segment mix between authentication.
Speaker Change: And precision logistics starts to be a little more balanced and we started to get a little bit more revenue.
Speaker Change: And authentication compared to precision logistics that would adjust the overall gross margin profile as well.
Jack Vander Aarde: That was a much longer answer than you're probably looking for, but I just wanted to make sure you had all the factors for your modeling. Does that make sense? No, not at all. That makes complete sense, and I very much appreciate the thorough response. It's good to see you guys continue to execute, and I look forward to tracking the story.
Speaker Change: It was a much longer answer than you probably look at four so did but I just wanted to make sure you had all the factors for your models.
Speaker Change: That makes that no no.
Speaker Change: That makes complete sense Tonight, and I very much appreciate the thorough response.
Speaker Change: It's good to see you guys continue to execute and look forward to tracking the story. Thank you.
Speaker Change: Thank you.
Operator: And the next question is a follow-up from Michael Petusky from Barrington Research. Please go ahead. Hey, Michael. Hey, thanks.
Michael John Petusky: And the next question is a follow up from Michael <unk> from Barrington Research. Please go ahead.
Michael John Petusky: Hey, Michael.
Michael John Petusky: I didn't catch the first part of the previous question around gross margin. I want to make sure that I understand your response. The gross margin, potential gross margin erosion, were you talking about the authentication business only or both, or potentially both? No. So, if we think of the status quo, our gross margin should maintain. Yeah. Gotcha.
Michael John Petusky: Hey, Thanks, I I I didn't catch the first part of the previous question around gross margin I want to make sure that I understand your response, the gross margin potential gross margin erosion you were talking about the authentication business only or perfect no absolutely no.
Michael John Petusky: So so if we think of it as status quo, our gross margin should maintain yeah gotcha Yep Yep. The we start to experience increased pricing pressure in the marketplace. Our strategy will be that we will adjust pricing in accordance.
Adam H. Stedham: If we start to experience increased pricing pressure in the marketplace, our strategy will be that we will adjust pricing in accordance with the pressure in the marketplace in order to deliver the revenue growth that we want to deliver. If that happens, we would see some gross margin erosion. We do not believe that we would see bottom-line profit erosion because of the offsetting pickup below gross margin. On the other hand, if the economy improves or maintains its status quo, we don't expect to see gross margin erosion, accounting for the fact that Q4 has a different product mix, and you get a different gross margin in Q4 than you do in the other quarters. So, except for that one factor, is there?
Speaker Change: With the pressure in the marketplace in order to deliver the revenue growth that we want to deliver if that happens we would see some gross margin erosion. We do not believe that we would see bottom line profit erosion, because because of the offsetting pick up below gross margin on the other.
Speaker Change: Ham.
Speaker Change: As the economy improves or maintain status quo, we don't expect to see gross margin erosion.
Speaker Change: And accounting for the fact that Q4 has a different product mix and you get a different price you get a different gross margin. In Q4, then you do the other quarters. So it except for that one factor is there a side of your business.
Unknown Speaker: Is there a side of your business where you're more concerned about the potential of some pricing pressure? Unknown Speaker Oh,
Unknown Speaker: We're more concerned about the potential of some pricing pressure.
Speaker Change: Yeah.
Speaker Change: I'll go through the year.
Speaker Change: Yes.
Adam H. Stedham: Unknown Speaker No, not really. The area that I think is critical is if we are targeting the broader market to get our revenue growth, then it's an easier sales process. It's easier to find customers when they grow. We know which segments of the market we think are desirable and which segments of the market are not really impacted by the overall macroeconomic environment. So we're targeting those segments, but it's a little less efficient sales process because we're targeting specific segments as opposed to being able to target the broader market.
Unknown Speaker: No not really what the area that I think.
Unknown Speaker: It is critical is if your if we are targeting the broader market to get our revenue growth.
Speaker Change: Then it's an easier sales process, it's easier to find the customers when the customers grow the customers, we know which segment of the market.
Speaker Change: We think our desirable and which segments of the market are not really impacted by the overall macroeconomic environment. So were had so we're targeting those segments, but it's a little less efficient sales process, because we're targeting specific segments as opposed to being able to target a broader market. So I wouldn't say that.
Adam H. Stedham: So I wouldn't say that there are areas that I'm concerned about. I would just say it's going to be a little bit more difficult to get the revenue growth than we had previously thought it would be.
Speaker Change: There are areas that I'm concerned about I would just say, it's gonna be a little bit more laborious to get the revenue growth.
Speaker Change: Then we had previously thought it would be.
Adam H. Stedham: Okay, alright, but but all aspects I mean, my sense is you've you've essentially affirmed all aspects of our prior financial guidance, whether it's a correct line or cash flow et cetera.
Michael John Petusky: All right, but but all aspects of prior financial guidance, my sense is you've essentially affirmed all aspects of prior financial guidance, whether it's the cutoff line or cash flow. It's Correct. All right, very good. Thanks, guys.
Michael John Petusky: Correct, Okay, alright, very good thanks, guys.
Michael John Petusky: Thank you.
Operator: And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back over to Adam Stedham for any closing remarks.
Adam H. Stedham: And ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Adam stood them for any closing remarks.
Operator: Yep.
Adam H. Stedham: Well, we do look forward to the remainder of the year, and it's been an exciting journey so far. Our next call will mark the one year point for me with the company. I look forward to that call, and I look forward to sharing the results with you for the second quarter. So, thank you, everyone.
Adam H. Stedham: Thank you well and so we do look forward to the remainder of the year and it's it's it's been an exciting journey. So far our next call will Mark the one year point for me with the company and I look forward to that call and look forward to sharing the results.
Adam H. Stedham: With you for the second quarter. So thank you everyone.
Operator: And thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Adam H. Stedham: And thank you.
France: France has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: [music].