Q2 2024 Intrusion Inc Earnings Call
Speaker Change: Welcome to Intrusion, Inc.'s second quarter 2024 earnings conference call and webcast.
Speaker Change: At this time, all participant lines are in a listen-only mode. For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments.
Josh Carroll: For those of you participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comment. Please note, this conference call is being recorded. An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Josh Carroll with Investor Relief. Thank you.
Speaker Change: Please note, this conference is being recorded.
Speaker Change: An audio replay of the conference call will be available on the company's website within a few hours after this call. I would now like to turn the call over to Josh Carroll with Investor Relations.
Josh Carroll: Joining me today are Tony Scott, Chief Executive Officer, and Kimberly Pinson, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects, future events, or plans may include forward-looking statements as defined under the Private Security Litigation Reform Act of 1995.
Josh Carroll: Thank you and welcome. Joining me today are Tony Scott, Chief Executive Officer, and Kimberly Pinson, Chief Financial Officer. This call is being webcast and will be archived on the Investor Relations section of our website.
Josh Carroll: Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe, as of today. We undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles.
Josh Carroll: Before I turn the call over to Tony, I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects, future events, or plans may include forelooking statements as defined under the Private Securities Litigation Reform Act 1995.
Josh Carroll: Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today's conference call.
Tony: Any forward-looking statements that we make on this call are based upon information that we believe, as of today, we undertake no obligation to update these statements as a result of new information or future events.
Tony: In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends.
Josh Carroll: During the call, we may use non-GAAP measures if we believe they are useful to investors or if we believe they will help investors better understand our performance or business trends. With that, let me now turn the call over to Tony for a few opening remarks. Thank you, Josh, and good afternoon, and thank you all for joining us today. Our second quarter results reflect a positive improvement from a revenue standpoint, as both our suite of shield technologies and our consulting business regain momentum.
Tony: With that, let me now turn the call over to Tony for a few opening remarks.
Tony: Thank you, Josh, and good afternoon and thank you all for joining us today.
Tony: Our second quarter results reflect a positive improvement from a revenue standpoint as both our suite of shield technologies and our consulting business regain momentum. And with the previous challenges that we've been facing over the past two years behind us,
Josh Carroll: And with the previous challenges that we've been facing over the past two years behind us, we've now been able to focus solely on positioning intrusion for growth, and we believe that we're beginning to see the early stages of those efforts materialize. Now, as many of you know, I've personally invested over one and a half million dollars into intrusion. And, like many of our investors, I invested a significant portion of this when our share price was trading at a higher level and is now at a loss compared to today's share price. And I understand how frustrating this is.
Tony: We've now been able to focus solely on positioning intrusion for growth and we believe that we are beginning to see the early stages of those efforts materialize.
Speaker Change: Now, as many of you know, I've personally invested over one and a half million dollars into intrusion, and like many of our investors, I invested a significant portion of this when our share price was trading at a higher level and is now at a loss compared to today's share price.
Anthony Scott: And while we still have a lot of work ahead of us, I believe that we are on the right path forward toward creating sustainable growth and a share price that's commensurate with improved results. Now, transitioning to some of our recent sales activity. Since we last spoke, we signed an additional 5 new logos, bringing our total new logo count year-to-date to 14.
Speaker Change: And I understand how frustrating this is, and while we still have a lot of work ahead of us, I believe that we are on the right path forward toward creating sustainable growth and a share price that's commensurate with improved results.
Speaker Change: Now, transitioning to some of our recent sales activity, since we last spoke, we signed an additional five new logos, bringing our total new logo count year-to-date to 14.
Anthony Scott: We see positive momentum for our suite of shield technology among a wide range of customers in different industries as our pipeline continues to grow. And over the next few quarters, as we continue to deploy our technology to these new logos, we will begin to see additional improvements in our financial results, which we believe will help drive revenue growth in 2024 and beyond. As we mentioned during our first quarter earnings call, we've been awarded two new orders for Intrusion Shield from our traditional government customer base, which marks an important milestone for intrusion as these are the first large-scale adoption of our shield technology with government customers.
Speaker Change: We see positive momentum for our suite of SHIELD technology among a wide range of customers in different industries as our pipeline continues to grow.
Speaker Change: And over the next few quarters, as we continue to deploy our technology to these new logos, we will begin to see additional improvements in our financial results, which we believe will help drive revenue growth in 2024 and beyond.
Speaker Change: As we mentioned during our first quarter earnings call, we've been awarded two new orders for Intrusion Shield from our traditional government customer base.
Speaker Change: which marked an important milestone for intrusion as these are the first large-scale adoption of our shield technology with government customers.
Anthony Scott: We began servicing one of these awards during the second quarter that included both SHIELD services and consulting work, which helped improve both our SHIELD and consulting revenue during the quarter. The second contract will begin contributing to revenues for both S.H.I.E.L.D.
Speaker Change: We began servicing one of these awards during the second quarter that included both SHIELD services and consulting work, which helped improve both our SHIELD and consulting revenue during the quarter.
Speaker Change: The second contract will begin contributing to revenues for both SHIELD and consulting throughout the remainder of the year and beyond.
Anthony Scott: and consulting throughout the remainder of the year and beyond. I'd like to give you an update on our recent partnership activity. We've been seeing strong momentum in the Philippines with the signing of multiple contracts in the region, including the I-1 resources contract to help protect the cybersecurity and integrity of national elections in the Philippines. In our recent partnership with TIM to provide our advanced threat detection and prevention solutions to ORCA cold chain solutions, and multiple other agreements with customers spanning across different sectors of the Philippine economy.
Speaker Change: I'd like to give you an update on our recent partnership activity. We've been seeing strong momentum in the Philippines with the signing of multiple contracts in the region.
Speaker Change: including the I-1 resources contract.
Speaker Change: to help protect the cybersecurity and integrity of national elections in the Philippines.
Speaker Change: and our recent partnership with TIM to provide our advanced threat detection and prevention solutions to ORCA cold chain solutions and multiple other agreements with customers spanning across different sectors of the Philippines economy.
Anthony Scott: As a result of this momentum and our strong pipeline in the region, I personally traveled to the Philippines earlier this month to speak with both current and potential customers to discuss our unique technology. These meetings were very positive, and the enthusiasm for our SHIELD technology is quite high given the nature of the cyber threats in that region of the world. We plan to announce additional agreements and expansions of current deployments in the region in the near future. And also, to help meet this growing demand in the Philippines and to better serve our expanding customer base in the region, we've officially opened a wholly owned subsidiary in the Philippines.
Speaker Change: As a result of this momentum and our strong pipeline in the region, I personally traveled to the Philippines earlier this month to speak with both current and potential customers to discuss our unique technology.
Speaker Change: These meetings were very positive and the enthusiasm for our shield technology is quite high given the nature of the cyber threats in that region of the world.
Speaker Change: We plan to announce additional agreements and expansions of current deployments in the region in the near future.
Speaker Change: and also to help meet this growing demand in the Philippines and to better serve our expanding customer base in the region, we've officially opened a wholly owned subsidiary in the Philippines.
Anthony Scott: As for our go-to-market strategy, we've been selling our products through managed service providers and managed security service providers, as well as more traditional reseller channels. I'm pleased to report that in each of these cases, we're beginning to see growth and increased pipeline as these organizations develop confidence in our products and services. And additionally, our renewals remain strong, with near zero churn for the quarter.
Speaker Change: As for our go-to-market strategy, we've been selling our products through managed service providers and managed security service providers, as well as more traditional reseller channels.
Speaker Change: I'm pleased to report that in each of these cases, we're beginning to see growth and increased pipeline as these organizations develop confidence in our products and services.
Speaker Change: And additionally, our renewals remained strong, with near zero churn for the quarter.
Anthony Scott: With respect to our product development efforts, we've continued to focus on adding new capabilities to increase the efficacy of our product. The work we do with our government customers often leads to useful insights into some of the most difficult challenges in the cybersecurity space. And we leverage those insights into new and novel approaches to advancing the cause of better cybersecurity in our products. We're always mindful that the cybersecurity space is very fluid, and yet many of the breaches and incidents that occur are the result of the failure of basic principles and practices.
Speaker Change: With respect to our product development efforts, we've continued to focus on adding new capabilities to increase the efficacy of our products.
Speaker Change: The work we do with our government customers often leads to useful insights into some of the most difficult challenges in the cybersecurity space. And we leverage those insights into new and novel approaches to advancing the cause of better cybersecurity in our products.
Speaker Change: We are always mindful that the cybersecurity space is very fluid, and yet many of the breaches and incidents that occur are the result of the failure of basic principles and practices.
Anthony Scott: The recent CrowdStrike incident, which crippled systems all over the world, is a testament to the degree to which we've become dependent on widely used software to run our businesses, government, and critical infrastructure and that the fragility of these ecosystems when a key component fails is paramount.
Speaker Change: The recent CrowdStrike incident, which crippled systems all over the world, is a testimony to the degree to which we've become dependent on widely used software to run our businesses, government, and critical infrastructure.
Speaker Change: and that the fragility of these ecosystems, when a key component fails, is paramount.
Anthony Scott: Since our products are often the last line of defense against the most sophisticated acts and actors in the cyber world, we take our responsibility seriously and invest in our product development efforts to ensure that we can live up to our customers' expectations. On the leadership front, we recently announced that we have appointed Dion Hinchcliffe to our Board of Directors. I'd like to add a little more color to that announcement. Dion brings extensive experience in information technology, business strategy, next-generation enterprises, and AI, having consulted Fortune 1000 companies, the federal government, and the internet startup community.
Speaker Change: Since our products are often the last line of defense against the most sophisticated acts and actors in the cyber world, we take our responsibility seriously and invest in our product development efforts to ensure that we can live up to our customers' expectations.
Anthony Scott: His expertise will help us further our go-to-market strategy, our partnerships with strategic players in the industry, and aid in our mission to provide our customers with highly effective cybersecurity solutions for their enterprises. Dion is widely known in the technology community for his insights into emerging trends in the technology space, and we look forward to his contributions to our mission.
Speaker Change: On the leadership front, we recently announced that we appointed Dion Hinchcliffe to our Board of Directors, and I'd like to add a little more color to that announcement.
Dion Hinchcliffe: Dion brings extensive experience in information technology, business strategy, next-generation enterprises, and AI, and having consulted Fortune 1000 companies
Dion Hinchcliffe: the federal government, and the internet startup community.
Dion Hinchcliffe: His expertise will help us further our go-to-market strategy, our partnerships with strategic players in the industry, and aid in our mission to provide our customers with highly effective cybersecurity solutions for their enterprise.
Dion Hinchcliffe: Diane is widely known in the technology community for his insights into emerging trends in the technology space and we look forward to his contributions to our mission.
Anthony Scott: Now briefly on to our financials. As you'll hear from Kim later in greater detail, total revenue for the second quarter was $1.5 million, representing an increase of 29% sequentially. This increase in revenue during the second quarter was driven largely by the addition of a government contract for our SHIELD and consulting services, as well as the several new logos that we've signed over the past few quarters. As I mentioned earlier, our turn for the quarter was near zero, and these new contracts, you have, for all practical purposes, filled the gaps that were created by churn in prior quarters.
Speaker Change: Now briefly on to our financials.
Speaker Change: As you'll hear from Kim later in greater detail, total revenue for the second quarter was 1.5 million, representing an increase of 29% sequentially.
Speaker Change: This increase in revenue during the second quarter was driven largely by the addition of a government contract for our SHIELD and Consulting Services as well as the several new logos that we've signed over the past few quarters.
Kim: As I mentioned earlier, our churn for the quarter was near zero, and these new contracts have, for all practical purposes, filled the gaps that were created by churn in prior quarters.
Anthony Scott: We believe that these government contracts recently added new logos and the deals we currently have in our pipeline will continue to drive growth and further diversify our customer base. Now, before I turn the call over to Kim, I'd like to discuss our efforts to improve our balance sheet and ensure that we have the funds needed to propel our growth and support our customers' needs. As we previously discussed in our last earnings call, we successfully closed on a private offering in April, which resulted in net proceeds to intrusion of $2.6 million.
Kim: We believe that these government contracts are recently added new logos and the deals we currently have in our pipeline will continue to drive growth and further diversify our customer base.
Speaker Change: Now, before I turn the call over to Kim, I'd like to discuss our efforts to improve our balance sheet and ensure that we have the funds needed to propel our growth and support our customers' needs.
Kim: As we previously discussed in our last earnings call, we successfully closed on a private offering in April, which resulted in net proceeds to intrusion of $2.6 million.
Anthony Scott: This private offering was a key final step towards helping us achieve compliance with NASDAQ's minimum equity standard. In addition to the private offering, we also secured $0.6 million during the second quarter through a warrant inducement program. The funds from both of these financing efforts are being used for working capital and general corporate purposes.
Kim: This private offering was a key final step towards helping us achieve compliance with NASDAQ's minimum equity standard.
Kim: In addition to the private offering we also secured 0.6 million during the second quarter through a warrant inducement program. The funds from both of these financing efforts are being used for working capital and general corporate purposes.
Kimberly Pinson: And finally, on July 3rd, we entered into a Standby Equity Purchase Agreement, or SEPA, with Streeterville Capital to self-affirm $10 million of our common stock. In order to have full access to the $10 million facility, pursuant to applicable NASDAQ rules, we are seeking shareholder approval at our annual meeting on August 27 to allow for the sale, issuance, or potential issuance of common stock in excess of 20% of the common shares outstanding.
Kim: And finally, on July 3rd, we entered into a Standby Equity Purchase Agreement, or SEPA, with Streeterville Capital to sell the firm $10 million of our common stock.
Kim: In order to have full access to the $10 million facility, pursuant to applicable NASDAQ rules, we are seeking shareholder approval at our annual meeting on August 27th to allow for the sale, issuance, or potential issuance.
Kim: common stock in excess of 20% of the common shares outstanding. We believe that the SIPA will allow us to be more strategic with how we access and deploy capital to support our future growth as our solutions continue to gain traction.
Kimberly Pinson: We believe that SIPA will allow us to be more strategic with how we access and deploy capital to support our future growth as our solutions continue to gain traction. With that, I would now like to turn the call over to Kim for a more detailed review of our second quarter financials.
Kim: With that, I would now like to turn the call over to Kim for a more detailed review of our second quarter financials. Kim?
Kimberly Pinson: Thanks, Tony. In the second quarter of 2024, revenues were $1.5 million, $0.3 million increased sequentially, and in line with our results for the second quarter of last year. Consulting revenue in the second quarter totaled $1.2 million, an increase of $0.5 million sequentially and $0.1 million on a year-over-year basis. This increase in consulting revenue was driven by the approval of the federal budget in late March, allowing for the issuance of new contract awards and for current task awards on existing contracts with government customers to move forward.
Kim: Thanks, Tony. In the second quarter of 2024, revenues were $1.5 million, a $0.3 million increase sequentially, and in line with our results for the second quarter of last year.
Kim: Consulting revenue in the second quarter totaled 1.2 million, an increase of 0.5 million sequentially, and 0.1 million on a year-over-year basis.
Kim: This increase in consulting revenue was driven by the approval of the federal budget in late March, allowing for the issuance of new contract awards and for current task awards on existing contracts with government customers to move forward.
Kimberly Pinson: Shield's revenue for the second quarter was $0.3 million, which was down $0.1 million on a sequential and year-over-year basis as a result of the loss of a large early intrusion shield customer that had implemented a highly customized and non-standard configuration of the product.
Kim: Shield's revenue for the second quarter was $0.3 million, which was down $0.1 million on a sequential and year-over-year basis as a result of the loss of a large early intrusion shield customer that had implemented a highly customized and non-standard configuration of the product.
Kimberly Pinson: The loss of revenues from this customer was partially offset by revenues from new customers acquired in recent quarters. However, as Tony mentioned earlier on the call, we do anticipate that we will see our SHIELD revenues continue to grow driven by the recent government order, the I-1 Resources Award, other new logos, and the expansion of current deployment. Gross profit margin was 76% for the second quarter of 2024 compared to 80% in the March quarter and 78% in the second quarter of 2023. Gross profit decreased slightly during the quarter as a result of product mix, with lower-margin consulting revenue representing a greater percentage of total revenue in the second quarter.
Kim: The loss of revenues from this customer was partially offset by revenues from new customers signed in recent quarters.
Kim: However, as Tony mentioned earlier on the call, we do anticipate that we will see our SHIELD revenues continue to grow driven by the recent government order, the I-1 Resources Award, other new logos, and the expansion of current deployments.
Speaker Change: Gross profit margin was 76% for the second quarter of 2024, compared to 80% in the March quarter and 78% in the second quarter of 2023.
Speaker Change: Our gross profit decreased slightly during the quarter as a result of product mix with lower margin consulting revenue representing a greater percentage of total revenue in the second quarter.
Kimberly Pinson: With that said, S.H.I.E.L.D. revenues represented 20% of our revenues in the second quarter of 2024. Operating expenses in the second quarter of 2024 totaled $3.1 million, a decrease of 0.2 million sequentially and 0.9 million when compared to the second quarter of 2023. The decrease in operating expenses during the quarter was driven by lower share-based compensation and the timing of professional services.
Speaker Change: With that said, S.H.I.E.L.D. revenues represented 20% of our revenues in the second quarter of 2024.
Speaker Change: Operating expenses in the second quarter of 2024 totaled $3.1 million, a decrease of $0.2 million sequentially, and $0.9 million when compared to the second quarter of 2023.
Speaker Change: The decrease in operating expenses during the quarter was driven by lower share-based compensation and the timing of professional services.
Kimberly Pinson: As we have noted in our past few earnings calls, there is the possibility that we could see an increase in our operating expense if we choose to accelerate our product development in future periods or increase our marketing spend to increase our brand awareness. As we move forward, we will continue to remain diligent with not only our spending decisions but also our investments that will ensure future growth. The net loss from operating activities for the second quarter of 2024 was $2 million, representing a 0.4 million or 18% improvement over the first quarter and a 0.9 million or 30% improvement on a year-over-year basis.
Speaker Change: As we have noted on our past few earnings calls, there is the possibility that we could see an increase in our operating expense if we choose to accelerate our product development in future periods or marketing spend to increase our brand awareness.
Speaker Change: As we move forward, we will continue to remain diligent with not only our spending decisions, but also our investments that will ensure future growth.
Speaker Change: The net loss from operating activities for the second quarter of 2024 was $2 million, representing a 0.4 million or 18% improvement over the first quarter, and a 0.9 million or 30% improvement on a year-over-year basis.
Kimberly Pinson: The improvement over the first quarter was driven by both gross profit on higher revenues and a decrease in operating expenses. The net loss for the second quarter of 2024 was $2.1 million, compared to a net loss of $1.7 million in the first quarter of this year. The increase in net loss on a sequential basis was principally a result of a $1 million credit to interest expense recorded in the first quarter, resulting from the exchange of the Streeterville debt for preferred stock and the reversal of the interest accretion and debt amortization costs associated with the ability to stock settle principal redemptions.
Speaker Change: The improvement over the first quarter was driven by both gross profit on higher revenues and a decrease in operating expenses.
Speaker Change: The net loss for the second quarter of 2024 was $2.1 million, compared to a net loss of $1.7 million in the first quarter of this year.
Speaker Change: The increase in net loss on a sequential basis was principally a result of a $1 million credit to interest expense recorded in the first quarter, resulting from the exchange of the Streeterville debt to preferred stock and the reversal of the interest accretion and debt amortization costs associated with the ability to stock settle principal redemptions.
Kimberly Pinson: On a year-over-year basis, the net loss improved by $1.1 million from $3.1 million in the 2023 quarter. Looking at the balance sheet, on June 30th, we had cash and cash equivalents of $1.5 million. Our principal sources of cash for funding operations in 2024 have been proceeds received from the issuance of common stock in a series of transactions which include $3.3 million from ATM sales, $2.6 million from a private placement, and $0.6 million from the warrant inducement program.
Speaker Change: On a year-over-year basis, net loss improved by $1.1 million from $3.1 million in the 2023 quarter.
Speaker Change: Turning to the balance sheet, on June 30th we had cash and cash equivalents of 1.5 million.
Speaker Change: Our principal sources of cash for funding operations in 2024 have been proceeds received from the issuance of common stock in a series of transactions which include $3.3 million from ATM sales,
Speaker Change: $2.6 million from a private placement and $0.6 million from the Warrant Inducement Program.
Kimberly Pinson: Our cash burn during the second quarter was higher than what we have experienced in recent quarters, principally resulting from changes in working capital, with working capital consuming $1.4 million in the second quarter, compared to working capital providing $0.7 million in the first quarter.
Speaker Change: Our cash burn during the second quarter was higher than what we have experienced in recent quarters, principally resulting from changes in working capital, with working capital consuming $1.4 million in the second quarter, compared to working capital providing $0.7 million in the first quarter.
Kimberly Pinson: The timing of customer prepayments can and does have a significant impact on our cash flows and contributed $0.5 million to our cash burn in the second quarter. Also, during the second quarter, our customer accounts receivable increased $0.5 million, primarily resulting from payment processing irregularities on one of our long-standing government contracts. As Tony mentioned earlier, we did enter into a SEPA agreement with Streeterville Capital to sell $10 million of our common stock.
Speaker Change: The timing of customer prepayments can and does have a significant impact on our cash flows and contributed $0.5 million to our cash burn in the second quarter.
Speaker Change: Also, during the second quarter, our customer accounts receivable increased $0.5 million, primarily resulting from payment processing irregularities on one of our long-standing government contracts.
Speaker Change: As Tony mentioned earlier, we did enter into a SEPA agreement with Streeterville Capital to sell 10 million of our common stock.
Kimberly Pinson: However, in order to have full access to the $10 million facility, pursuant to applicable NASDAQ rules, we are seeking stockholder approval at our annual meeting to allow for the sale issuance or potential issuance of common stock in excess of 20% of the common shares outstanding. We believe this transaction will provide Intrusion with the future flexibility it needs in order to enhance its liquidity in an opportunistic and efficient manner. I'd like to now turn the call back over to Tony for a few closing comments. Okay, Tony?
Speaker Change: However, in order to have full access to the $10 million facility, pursuant to applicable NASDAQ rules, we are seeking stockholder approval at our annual meeting to allow for the sale, issuance, or potential issuance of common stock in excess of 20% of the common shares outstanding.
Speaker Change: We believe this transaction will provide intrusion with the future flexibility it needs in order to enhance its liquidity in an opportunistic and efficient manner.
Speaker Change: I'd like to now turn the call back over to Tony for a few closing comments. Tony?
Anthony Scott: Thanks, Kim. The second quarter was an important step in the right direction for intrusion and included tangible signs that our strategy to drive growth through our compelling products and innovative strategies is coming to fruition through improved revenue results. Our pipeline for both new logos and current contract expansions remains strong, and we're confident that we are on the right path forward to grow our business and improve our share price. As always, I'd like to thank our investors and financial partners for their continued support as we execute our strategy and our employees for all their hard work during this past transition period.
Tony: Thanks, Jim.
Tony: The second quarter was an important step in the right direction for intrusion and included tangible signs that our strategy to drive growth through our compelling products and innovative strategies are coming to fruition through improved revenue results.
Tony: Our pipeline for both new logos and current contract expansions remains strong, and we're confident that we are on the right path forward to grow our business and improve our share price.
Tony: As always, I'd like to thank our investors and financial partners for their continued support as we execute our strategy and our employees for all their hard work during this past transition period.
Anthony Scott: This is an exciting time for intrusion, and we look forward to providing additional updates on our progress during the second half of the year. This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A. Thank you.
Tony: This is an exciting time for intrusion, and we look forward to providing additional updates on our progress during the second half of the year.
Tony: This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A.
Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: Thank you. At this time, we will be conducting a question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. One moment, please, while we poll for questions. The first question today is coming from Scott Buck from H.C. Wayne. Scott, your line is live; please go ahead.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please while we poll for questions.
Speaker Change: And the first question today is coming from Scott Buck from HC Wainwright. Scott, your line is live. Please go ahead.
Scott Buck: Hi, good afternoon, guys. Thanks for taking my questions. Tony, I was hoping you might be able to give us a little more color on where you're seeing strength in the pipeline. And then, on the government side, is there any additional low-hanging fruit there for SHIELD? A great question, Scott. Yeah, we think there is.
Scott Buck: Hi, good afternoon guys. Thanks for taking my questions. Tony, I was hoping you might be able to give us a little more color on where you're seeing strength in the pipeline. And then on the government side, is there any additional low-hanging fruit there for SHIELD?
Anthony Scott: As I kind of hit on the call, we've been continually investing in new capabilities, you know, based on emerging trends and those kinds of things and baking them into SHIELD. And so, even just this last week, we identified some new opportunities and new customers that can take advantage of some of these new capabilities that we've just developed. So, the excitement level remains pretty high for those new capabilities and I think they will lead to additional customers in both the government sector and elsewhere as well. So, I'm pretty jazzed about all of that, and we'll continue to invest in our product. You know, as I said on the call, the... cybercriminals and actors don't sleep, and neither do we.
Speaker Change: Great question, Scott. Yeah, we think there is. As I kind of hit it on the call, we've been continually investing in new capabilities, you know, based on emerging trends and those kinds of things.
Speaker Change: and baking them into S.H.I.E.L.D. And so, even just this last week, we've identified some new opportunities and new customers.
Speaker Change: that can take advantage of some of these new capabilities that we've just developed. So the excitement level remains pretty high for those.
Speaker Change: for those new capabilities and I think will lead to additional customers in both the government sector and elsewhere as well.
Speaker Change: So, pretty jazzed about all of that, and we'll continue to invest in our product. You know, as I said on the call, the...
Speaker Change: cyber criminals and actors don't sleep and neither are we. We're doing our best to keep up with all the new developments.
Anthony Scott: We're doing our best to keep up with all the new developments. In terms of the contracts, you know, we'll selectively announce them. I think the nature of what we're seeing with a lot of these is quite a few started small, you know, maybe with one or two shields, and their teams get some experience with them, begin to really fully realize the efficacy of the product, and then want to go big. So, as an example, I was in the Philippines with one customer, and they started with two or three appliances, and the team got, you know, well-trained on the products, and they saw what these, what Shield could do.
Speaker Change: In terms of the contracts, you know, we'll selectively announce them. I think the nature of what we're seeing on a lot of these is...
Speaker Change: quite a few started small, you know, maybe with one or two shields and their teams get some experience with it, begin to really fully realize the efficacy of the product and then
Speaker Change: want to go big. So as an example, I was in the Philippines with one customer and they started with two or three appliances and the team got, you know, well
Speaker Change: trained on the products and they saw what these what shield could do and I talked to the CEO and he said I want to go big and put these everywhere in our organization and and similarly with some of our managed service providers
Anthony Scott: And I talked to the CEO, and he said, I want to go big and put these everywhere in our organization. And, similarly, with some of our managed service providers, a couple of which have been with us for quite a while.
Speaker Change: a couple of which have been with us for quite a while.
Anthony Scott: Based on their customer feedback, they're now saying, hey, we want to go bigger and put this in more customer environments. So I'm encouraged by all of those signs. Great, that's helpful. And then on the potential Streeterville capital raise, I'm sorry, do you guys have a date for your annual meeting? We do. It's August 27th, I believe.
Speaker Change: based on their customer feedback, they're now saying, hey, we want to, you know, go bigger.
Speaker Change: put this in more customer's plate.
Speaker Change: environments. So I'm encouraged by all of those signs.
Speaker Change: Great, that's helpful. And then on the potential Streeterville capital raise, I'm sorry, do you guys have a date for your annual meeting?
Speaker Change: We do, it's August 27th, I believe.
Anthony Scott: Okay, a couple of weeks out, and then... If this should go through, how do you think about the capital coming in and where will those proceeds be utilized within the business? Well, the beauty of SEPA is that it kind of acts like a credit line versus the ATM or us having to go out and do a capital raise. And so we can control the timing of that a lot more on the one hand. So it's kind of like there is an insurance policy, but you know, we're not going to use any of it if we don't need to.
Speaker Change: Okay, a couple weeks out. And then, if this should pass, how do you think about the capital coming in and, you know, where will those proceeds be utilized within the business?
Anthony Scott: But because it's kind of an on-demand facility, we can use it when we need to versus being at the whim of market conditions on any given day or any given week, and so on. So it's, I think it affords us more flexibility. Okay, so it sounds like you don't have funds earmarked for something in particular. No, no, and we'll use it for general corporate purposes, you know, product development, you know, the traditional things that we've been investing in. Okay, that's helpful.
Speaker Change: Well, it's the beauty of the SIPA is...
Speaker Change: it's kind of it kind of acts like a credit line versus the ATM or us having to go out and do a
Speaker Change: a capital raise and so we can control the timing of that a lot more on the one hand so it's kind of there as an insurance policy but
Speaker Change: You know, we're not going to use any of it if we don't need to Because it's kind of an on-demand facility we can use it when we need to versus being at the whim of market conditions on any given day or any given week
Speaker Change: and so on. So it's, I think it affords us more flexibility.
Speaker Change: Okay, so it sounds like you don't have funds earmarked for something in particular.
Speaker Change: No, no, and we'll use it for general corporate purposes, you know, product development, you know, the traditional things that that we've been investing in.
Kimberly Pinson: And then last one, Kim, on operating expenses, I mean, you mentioned you may want to ramp up marketing a little bit and maybe some R&D. But in terms of fixed costs or just kind of general cost infrastructure outside of those items, are you pretty comfortable with where you are and, you know, as SHIELD starts to scale here beginning in the second half? We'll start to see some better operating leverage in the business. I believe that I am comfortable with where things are.
Speaker Change: okay that's helpful and then last one Kim on operating expenses I mean you mentioned you may want to ramp marketing a little bit and maybe some R&D
Kim: In terms of fixed costs or just kind of general cost infrastructure outside of those items are you pretty comfortable with where you are and you know as shield starts to scale here beginning in the second half we'll start to see some some better operating leverage in the business.
Kimberly Pinson: I think that we've scaled things back in the right places, and as we begin to grow the top line, we may make those choices to accelerate some product development or greater marketing efforts to get our brand name out there. But I'm very comfortable with where our operating expenses are now, and I think we can really leverage them and not have to increase expenses as we see growth in the top line.
Speaker Change: I believe that I am comfortable with where things are. I think that we've scaled things back in the right places.
Speaker Change: And as we begin to grow the top line, we may make those choices to accelerate some product development.
Speaker Change: or greater marketing efforts to get our brand name out there. But I'm very comfortable with where our operating expenses are now and I think we can really leverage them and not have to increase expenses as we see growth in the top line.
Kimberly Pinson: Thank you for that. I appreciate the time, guys. Thank you. Thank you. Thanks Scott. Thank you. And as a reminder, if you wish to join the queue to ask a question at this time, you may press star one on your keypad to enter. Our next question today is from Walter Sahen, from Massachusetts. Walter, your line is live. Please go ahead. Hi Tony, Kim. You announced or said you have 14 logos now. How many of them are there in the Philippines?
Speaker Change: Perfect. Thank you for that. I appreciate the time, guys.
Josh Carroll: Thank you. Thanks, Josh.
Walter Schenker: The new logos. Approximately. Maybe Kim can answer that she doesn't have the data right in front of her, but I would suspect that it is, politely more than half, I would guess off the top of my head.
Speaker Change: Thank you and as a reminder if you wish to join the queue to ask a question at this time you may press star 1 on your keypad to enter the queue.
Speaker Change: Our next question today is coming from Walter Sahenker from Mazz Partners. Walter, your line is live. Please go ahead.
Walter Sahenker: Hi Tony, Kim, you announced or said you have 14 logos now. How many of them are in the Philippines?
Speaker Change: the new logos.
Speaker Change: Approximately
Tony: I'm maybe Kim can answer that I don't have the data right in front of me but I would suspect that it's
Kim: slightly more than half I would guess off the top of my head but
Anthony Scott: Yeah, it is. And you've announced three contracts specifically in the Philippines, the original, which I think was a telecom company, the election, and the cold storage, if I have it right. When or how are we beginning to see a ramp in revenues from those contracts? On the Commission on Elections and ORCA and some of the others; we're in a different situation when it comes to the telecom company. I don't have any announcement to make on that at the moment, but I'll only say it's been a little more disappointing than we originally projected. Okay, but has the election already started generating revenues? It will in Q3, yeah, it will in Q3.
Kim: Yeah, it's in half.
Speaker Change: And you've announced...
Speaker Change: three contracts specifically in the Philippines, the original, which I think was a telecom company, the election, and the cold storage, if I have it right. When or how are we beginning to see a ramp in revenues from those contracts?
Speaker Change: We on the Commission on Elections and in ORCA and some of the others we are we're in a
Speaker Change: different situation when it comes with the telecom company. And I don't have any announcement to make on that at the moment, but I'll only say it's been a little more disappointing than we originally projected.
Speaker Change: Okay, but the election starts generating revenues already or...
Speaker Change: it will in q3 yeah it will okay we're in q3
Walter Schenker: Okay. And when you talked about the government contracts and the use of S.H.I.E.L.D., is there some metric, I mean, once we talked about seats or appliances or something, how you look at a significant or big or whatever, I forget the... Adjective you used on the new contract. Is it six figures? Is it seven figures? And because you've had a seven-figure government contract, you're not identifying who it is. I'm just trying to get some idea of how big the bread box is.
Speaker Change: Okay, and when you talked about your, the good...
Speaker Change: the government contracts and use of SHIELD. Is there some metric, I mean, once we talked about seats or appliances or something, how you look at a significant or big or whatever, I forget the...
Speaker Change: adjective you used on the new contract. Is it six figures? Is it seven figures? And because you've had seven figure government contract, you're not identifying who it is. I'm just trying to get some idea of how big the breadbox is.
Anthony Scott: Well, remember that for Shield, we, our metric is recurring revenue because it's a subscription model. Right. And, and so that's our, that's our measure is just increases in recurring revenue. Our consulting contracts tend to be task orders on a, you know, yearly or on a monthly basis. Contracts are typically three years with some option years behind that.
Speaker Change: Well, remember that for S.H.I.E.L.D. our metric is recurring revenue because it's a subscription model.
Speaker Change: and and so that's our that's our measure is just increases in recurring revenue our consulting contracts tend to be task orders on a
Speaker Change: You know yearly or on a monthly basis
Speaker Change: Contracts are typically three years with some...
Speaker Change: option years behind that.
Anthony Scott: So the weird thing is it kind of acts like recurring revenue, but nobody actually measures it that way. So, but for Shield, it's clearly, you know, subscription revenue. And we will, I hope, in the next quarter to start reporting that on an annualized basis. We're still working through some of the metrics and measures to make sure we report it correctly and accurately. And for S.H.I.E.L.D.
Speaker Change: So, the weird thing is it kind of acts like recurring revenue, but...
Speaker Change: nobody actually measures it that way so
Speaker Change: But for SHIELD, it's subscription-relevant.
Speaker Change: and we will I hope in you know the next quarter to start reporting that on a annualized basis we're still working through some of the
Speaker Change: the metrics and measures to make sure we report it correctly and accurately.
Walter Schenker: on, which is a recurring revenue, you get paid monthly, quarterly, it varies by contract? I'm just trying to understand. It depends on the customer. Yeah, it depends on the customer. Yeah, it depends on the customer. So we prefer to get paid, you know, quarterly or annually up front. But we have some customers that are monthly and some that, you know, you know, pay in different increments.
Speaker Change: And for S.H.I.E.L.D., which is a recurring revenue, you get paid monthly, quarterly,
Speaker Change: It varies by contract. I'm just trying to understand. It depends on the customer. Yeah, it depends on the customer. So we prefer to get paid quarterly or annually up front.
Speaker Change: but we have some customers that are monthly and some that you know
Anthony Scott: So that's all part of the mechanics of measuring, you know, recurring revenue accurately and reporting it regularly. We also are working on just standardizing that so that we have fewer variations from a contracting basis. I'm not turning down any business because the customer wants to pay us in a different increment, but we do hope to standardize in a more consistent fashion.
Speaker Change: pay in different increments. So that's all part of the mechanics of measuring.
Speaker Change: you know, recurring revenue accurately and reporting it regularly.
Speaker Change: We also are working on just standardizing that so that we have fewer variations.
Speaker Change: from a contracting basis.
Speaker Change: I'm not turning down any business because the customer wants to pay us in a different increment but we do hope to standardize in a more consistent fashion.
Walter Schenker: And finally, if we look at the quarter just ended, you were operating at a $6 million annual rate, all of which is not requiring revenue. You have a number of contracts kicking in in the second half, the new government contract, the election, some of the other logos. You would expect to be at a multiple on an annualized basis of your current run rate by the end of the year. I would hope so, yes.
Speaker Change: And finally, if we look at the quarter just ended, you were operating at a $6 million annual rate, all of which is not requiring revenue. You have a number of contracts kicking in in the second half, the new government contract, the election, some of the other logos.
Speaker Change: you would expect to be at a multiple on an annualized basis of your current run rate by the end of the year?
Anthony Scott: That's our goal. OK. Thanks, and good luck coming. Yeah, we see a ramp up in the second half of the year with some of these.
Speaker Change: I would hope so, yes.
Speaker Change: That's our goal. Okay.
Speaker Change: Thanks and good luck coming. Yeah, we see a ramp in the second half of the year as some of these contracts and so on begin to get implemented.
Anthony Scott: Contracts and so on begin to get implemented. Okay, again, thank you and good luck. Thank you. Your next question is coming from Ed Woo from Ascendiant Capital. Ed, your line is live. Please go ahead. Yeah, thank you for taking my question. My question is about the sales cycle. Have you noticed any lengthening of the sales cycles, either because of competition or the economy?
Edward Woo: Thank you. We have seen sales cycles take a lot longer than we expected, but in this case, I wouldn't blame it on either competition or the economy. I would chalk it up really to the complexity of the cybersecurity space.
Speaker Change: Again, thank you and good luck.
Speaker Change: Thank you.
Speaker Change: Your next question is coming from Ed Wu from Ascendian Capital. Ed, your line is live. Please go ahead.
Ed Wu: Yeah, thank you for taking my question. My question is on the sales cycle. Have you noticed any lengthening of the sales cycles, either because of competition or the economy? Thank you.
Speaker Change: We have seen sales cycles take a lot longer than we
Speaker Change: expected, but I in this case wouldn't blame it on either competition or the economy. I would chalk it up really to the complexity of the cybersecurity space.
Anthony Scott: And I think, as I've mentioned on prior calls, initially, our customers want to confuse us with a firewall or some other technology that they're more familiar with. And it just takes a little while and a few more conversations to help them understand, you know, what the differences are and the role that intrusion technology can play in that, in a more modern environment. And that just takes some time. The good news is that when we convince them to do a POC or a trial and they see what we can actually do, then typically, they want to hurry up and, you know, get to the implementation stage.
Speaker Change: And I think as I've mentioned on prior calls, initially, our customers want to confuse us with a firewall or some other technology that they're more familiar with. And it just takes a little while and a few more conversations.
Speaker Change: help them understand, you know, what the differences are and the role that intrusion technology can play in that, in a more modern environment.
Speaker Change: And that just takes some time. The good news is that...
Speaker Change: When we
Speaker Change: convinced them to do a POC or a trial and they see what we can actually do then typically they want to hurry up and you know
Speaker Change: and get the implementation stage. And that's what we were seeing with the CEO I was talking about earlier in the call. Once they really
Anthony Scott: And that's what we were seeing with the CEO I was talking about earlier in the call. Once they really understood what it was and the efficacy of the product in their current environment, the efficacy of shield, then it was, you know, hurry up, let's get this going. But the lead up to that took a lot longer than I would have liked, and I think that's a pattern that, you know, we've seen on a fairly regular basis.
Speaker Change: understood what it was and the efficacy of the product in their current environment, the efficacy of SHIELD, then it was, you know, hurry up, let's get this going.
Speaker Change: But the lead up to that took a lot longer than I would have liked, and I think that's a pattern that, you know, we've seen on a fairly regular basis.
Edward Woo: Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you. Thank you, guys. Thank you. At this time, there are no other questions in queue.
Speaker Change: Well, thanks for answering my questions and I wish you guys good luck. Thank you.
Speaker Change: Thanks guys.
Speaker Change: Thank you. At this time there are no other questions in queue. I'll turn the call back over to our host, Mr. Tony Scott.
Anthony Scott: I'll turn the call back over to our host, Mr. Tony Scott. Well, thanks, everybody, for joining the call. I really appreciate your support and will continue to appreciate your support as we work on executing our strategy. I'm convinced that we have all of the tools that we need in place. We have the right team. We've got momentum now. And I'm really looking forward to the second half of this year, and I look forward to updating everyone on our progress during the third quarter and the fourth quarter of this year.
Tony Scott: Well, thanks everybody for joining the call. I really...
Tony Scott: appreciate your support, continue to appreciate your support as we work on executing our strategy.
Speaker Change: I'm convinced that we have all of the
Speaker Change: Tools that we need in place. We have the right team
Speaker Change: We've got momentum now and I'm really looking forward to the second half of this year and I look forward to updating everyone on our progress during the third quarter and the fourth quarter of this year.
Anthony Scott: I know that you'll be as interested in the results as I am and as excited about them as I am as well. So thanks, everybody, and I appreciate your support. Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: I know that you'll be as interested in the results as I am and as excited about it as I am as well, so thanks everybody and I appreciate your support.
Speaker Change: Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: [inaudible]
Operator: In the next video, we'll see you in the next video, and we'll see you in the next video. Welcome to Intrusion, Inc.'s second quarter 2024 earnings conference call and webcast. At this time, all participant lines are in a listen-only mode.
Operator: Williamson,............