Intrusion Q4 2024 Earnings Call Transcript

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February 27, 2025

There are 8 speakers on the call.

Operator

Welcome to Intrusion Inc. Fourth Quarter twenty twenty four Earnings Conference Call and Webcast. 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 Carle with Investor Relations.

Speaker 1

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. Before I turn the call over to Tony, I'd like to remind everyone that the statements made during this conference call relate to the company's expected future performance, future business prospects, future events or plans may include forward looking statements as defined under the Private Securities Litigation Reform Act of 1995. 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.

Speaker 1

Any forward looking statements that we make on this call are based upon information that we believe as of today, and 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. During the call, we may use non GAAP measures if we believe it is useful to investors or if we believe will help investors better understand our performance or business trends.

Speaker 1

With that, let me now turn the call over to Tony for a few opening remarks.

Speaker 2

Thank you, Josh. Good afternoon and thank you all for joining us today. We closed out 2024 with another quarter of sequential growth, marking our third consecutive quarter of revenue improvement as our recent efforts to position our business for sustainable growth and profitability continue to come to fruition. During the year, we signed a total of 20 new SHIELD logos and we have continued to experience near zero churn with our SHIELD customers. Furthermore, our pipeline has continued to expand with high quality opportunities driven by increasing demand for our products in The U.

Speaker 2

S. And in the broader Asia Pacific region. I'm delighted to report that as a result of a series of events late in December 2024 and early January twenty twenty five, we're in the best financial position the company has been in since I joined. As we previously disclosed in a recent eight ks filing, we are virtually debt free, have eliminated the Series A preferred stock and have enough cash in the bank to fund our operations through fiscal year '20 '20 '5 and beyond. Now this is a significant achievement for Intrusion for a few reasons.

Speaker 2

First, and probably most importantly, it eliminates any need for us to further raise capital in 2025. And we have no intention of doing so, absent some compelling inorganic opportunity. I understand that many shareholders, including myself, have been concerned about continued dilution. But I'm happy to say that with the elimination of the preferred Series A and our improved cash position, this concern should be eliminated. Second, the recent activities have eliminated the prior baby shelf limitations on capital raises.

Speaker 2

And should a compelling inorganic opportunity become available, we will have increased flexibility to engage in such an activity. Now again, currently there is no specific transaction being considered, but we now have options that frankly weren't available to us before. Third, our cash position has eliminated the going concern opinion that has been an issue with our 10 ks for the last two years. And while it may seem a small thing, potential customers do look at such things when considering doing business with us. With this sales barrier now gone, we've been having different and better conversations with potential customers.

Speaker 2

And finally, as many of you know, our management team for the last three years has out of necessity been consumed with raising capital, controlling costs, adding needed capability to our products and managing various legal issues. And while we will continue to manage our costs diligently, we are pleased that many of these prior hurdles are now behind us and we can now shift our focus entirely towards our main priority of growing our business, which is a welcome opportunity for all of us. While we've continued to make progress on the sales front, I'm not satisfied with the rate of increase we are currently making and we are taking some additional measures to help accelerate our growth. We are in the process of making our ShieldCloud product available in the AWS marketplace, which is a high growth engine for many companies like ours. We are increasing our digital marketing to include better visibility and engagement on relevant social media platforms.

Speaker 2

Additionally, we've also started revamping of our channel program to refine our messaging, pricing, go to market processes and various other aspects where we've identified some gaps that have inhibited our growth. I'm confident that the changes we are making will help us accelerate our growth and will provide for better engagement with our partners as well as improved discipline in our sales and marketing processes. And while not always under our control, every quarter we've had significant deals slip into the next quarter or we've experienced meaningful delays in onboarding, which impacts the timing of revenue and makes it hard to allocate resources properly. These changes should help accelerate our time to revenue and provide a more reliable and consistent set of bookings and revenue forecasts. To ensure that we can continue to attract new customers and meet the needs of our growing customer base, we've continued to invest in R and D at a relatively constant level to improve our portfolio, all with the goal of helping organizations address the constantly changing cybersecurity challenges that they face.

Speaker 2

One of the twenty twenty four improvements to our portfolio was the launch of the Intrusion Shield command hub, which is a centralized hub that gives MSPs and network administrators a way to view, manage and report on an entire fleet of Shield products, including endpoint, on prem and cloud. The latest features of the CommandHub is the addition of an AI driven insights engine that analyzes vast quantities of network activity and improves administrator security posture by providing them with a prioritized list of actionable items based on its analysis. In addition to the CommandHub, we also recently announced the introduction of Intrusion Shield Sentinel, a high performance 100 gigabit monitoring appliance built for large enterprises and telecom providers, allowing for comprehensive visibility across the largest and most complex of network environments. Shield Sentinel delivers a scalable, data rich monitoring appliance for our customers that will help simplify threat hunting, streamline compliance and enhance overall security. Early customer feedback has been promising and we are shipping additional units in the first quarter for our initial paying customer.

Speaker 2

We're also pleased to announce that we've developed and have piloted with a paying customer a new product offering to support the cybersecurity and resilience posture of critical infrastructure assets. And this work, while in its early stages of deployment, has great promise and ultimately will be available to critical infrastructure providers, which are high value targets for both nation state and criminal enterprises. More work is needed before we broadly market this new product, but I wanted to share it as it will be an important addition to our portfolio of products. Now briefly on to our financials. Total revenues for the fourth quarter were $1,700,000 representing an 11% increase on a sequential basis.

Speaker 2

For fiscal twenty twenty four, revenues were 5,800,000.0 a 3% increase compared to fiscal year twenty twenty three. As for our operating expenses, we've continued to maintain disciplined cost controls to help keep our expenses low, which have remained relatively flat on a sequential basis and are down approximately 21% for 2024 compared to the previous year. Before I turn the call over to Kim, I would like to provide an update on our current share price. As many of you are aware, we received a written notice from the NASDAQ stock market back in October indicating that intrusion was not in compliance with the $1 minimum bid price requirement for continued listing. However, as a result of the recent improvement in our share price over the past couple of months, we were informed by the listing qualification staff of NASDAQ that Intrusion had successfully regained compliance.

Speaker 2

While we are pleased with this outcome, we are not satisfied with the current share price and our focus will continue to remain on increasing revenue and achieving profitability, which in turn we hope will drive our stock price higher in a sustainable fashion. With that, I would now like to turn the call over to Kim for a more detailed review of our fourth quarter financials. Kim?

Speaker 3

Thanks, Tony. In the fourth quarter of twenty twenty four, revenues were $1,700,000 an increase of 11% sequentially and 23% when compared to the prior year period. Revenue for the full year ended 12/31/2024 was $5,800,000 an increase of $200,000 or 3% compared to 2023. Consulting revenue in the fourth quarter totaled $1,300,000 an increase of $300,000 sequentially and $400,000 on a year over year basis. For the full year, consulting revenues totaled $4,200,000 an increase of $200,000 from last year.

Speaker 3

Shield revenue in the fourth quarter was $400,000 a decrease of $100,000 both sequentially and year over year. For the full year, Shield revenue was $1,600,000 a decrease of $100,000 or 5% from 2023 full year revenue. The decline in shield revenue was due to the loss of a large early intrusion shield customer that had implemented a highly customized and non standard configuration of the product. The loss of revenues from this customer has now been fully offset by revenues from new customers signed in recent quarters and to a large degree from the recent $2,000,000 contract with the U. S.

Speaker 3

Department of Defense that was previously announced. Gross profit margin was 75% for the fourth quarter of twenty twenty four compared to 79% in the fourth quarter of twenty twenty three. Our gross profit margin will continue to vary depending on product mix, which was the main driver for the decrease during the fourth quarter. Gross profit margin was 77% for the full fiscal year 2024 compared to 78% in fiscal twenty twenty three. Operating expenses in the fourth quarter of twenty twenty four totaled $3,200,000 flat on a sequential basis and a decrease of $300,000 when compared to the fourth quarter of twenty twenty three.

Speaker 3

The decrease on a year over year basis was primarily driven by a one time settlement with our D and O carrier for reimbursement of legal support costs associated with the SEC investigation, which was settled in 2023. Operating expenses totaled $12,900,000 in 2024, representing a $3,500,000 or 21% decrease from 2023. You may recall in March 2023, we implemented cost reduction measures that resulted in the reduction of 16 permanent positions, reduced our use of contractors and renegotiated or replaced spending on certain sales support and marketing services with less costly programs. As part of our efforts to retain talent during this period, we granted equity awards to employees in March 2023 with a one year vesting. The combination of reduced non cash share based compensation in 2024 alongside one time negotiated contract savings and the insurance settlement mentioned above has contributed $1,400,000 in savings over 2023.

Speaker 3

As Tony mentioned earlier, we have also recently initiated several sales and marketing programs to accelerate revenue growth. As we grow our revenue base and increase our revenues, we may choose to increase our investment in sales and marketing and accelerate our product development in future periods. Both will increase costs. We will however continue to remain vigilant in all spending decisions. The net loss from operating activities for the fourth quarter of twenty twenty four was a loss of 1,900,000 a $100,000 improvement from the third quarter and a $500,000 or 20% improvement on a year over year basis.

Speaker 3

The improvement over the prior year was driven principally by reduced operating expenses. The net loss from operating activities for the full year 2024 was a loss of $8,400,000 a $3,600,000 or 30% improvement from the full year 2023. The net loss for the fourth quarter of twenty twenty four was a loss of $2,000,000 or $0.36 per share. On a year over year basis, net loss improved by $900,000 from a loss of $2,800,000 in the fourth quarter of twenty twenty three. The improved net loss relates to reduced operating losses resulting principally from lower operating expenses and reduced interest expense Streeterville debt.

Speaker 3

The net loss for the full year of 2024 was a loss of $7,800,000 or $1.63 per share, a $6,100,000 or 44% improvement from the prior year. Turning to the balance sheet. From a liquidity perspective, on December 31, we had cash and cash equivalents of $4,900,000 compared to $100,000 in 2023. However, as you are all likely aware, the recent run up in our share price in December and January allowed us to take several financial actions that resulted in $14,500,000 in proceeds to the company and the elimination of $10,100,000 notional value of all Series A preferred stock. To provide some more color, these actions included the sale of $300,000 of the company's common stock from the company's warrant inducement plan on 12/27/2024 the receipt of $1,700,000 from draws on the previously announced Standby Equity Purchase Agreement with Streeterville Capital the sale of approximately $5,000,000 of common stock pursuant to the ATM program during the fourth quarter of twenty twenty four the closing of a registered direct offering on 01/07/2025, resulting in gross proceeds of approximately $7,500,000 and finally, the execution of a series of transactions exchanging 9,025 shares of Series A preferred stock with a notional value of $9,900,000 for 3,500,000.0 shares of common stock.

Speaker 3

These actions helped to strengthen our financial position and ensure that we have sufficient capital to fund operations in calendar year 2025. While we do not currently have plans to raise additional capital in 2025, we filed a $100,000,000 replacement S3 shelf registration on 01/30/2025, which went effective on February 10. Because our public float as calculated in accordance with General Instruction 1B1 of Form S3 is above $75,000,000 we are no longer subject to the capital raise limitations imposed by the Baby Shelf rule. We believe this provides a great degree of financial flexibility to be able to respond to opportunities as they arise or should we have the need for additional capital. With that, I'd now like to turn the call back over to Tony for a few closing comments.

Speaker 3

Tony?

Speaker 2

Thanks, Kim. As we look to 2025 and beyond, we're excited about the opportunities that lie ahead and our focus continues to remain on improving our financial performance and to drive sustainable growth. Even despite the challenging environment that we've faced over the past year, we've continued to invest in innovation as I talked about earlier today, because this is the engine that will help us grow our business globally. It's our belief that we have only scratched the surface of our potential as a customer base and our pipeline continue to grow amid the rising demand for cybersecurity solutions. It's an exciting time for Intrusion and we look forward to providing all of our stakeholders with additional updates on our first quarter earnings call.

Speaker 2

This concludes our prepared remarks And I'll now turn the call over to the operator for Q and A.

Operator

Thank you. At this time, we'll be conducting a question and answer session. And the first question today is coming from Scott Buck from H. C. Wainwright.

Operator

Scott, your line is now open.

Speaker 4

Open. Congratulations on the balance sheet progress. First question, Tony, you mentioned you could potentially raise capital if an inorganic opportunity came about. What would be compelling to you guys?

Speaker 2

Well, I mean, there's a whole wide range of things, but primarily it would be either an acquisition or some arrangement that significantly added to our product portfolio that would make us even more attractive to potential customers. As I think we've talked about many times, people often confuse us with other cybersecurity technologies. And the more we round out our capabilities, potentially there's less confusion about what we specifically do. Today, we fit in a pretty narrow niche of capabilities. And when we talk to customers, quite often they ask us about things that they would like to see in cybersecurity products that they just can't find anywhere.

Speaker 2

And so these are all opportunities for us to either develop something or potentially acquire specific technology that might fill some of those gaps. But I want to reiterate, we don't have anything specific in mind at this point. But a couple of years ago, there would have been a few things that we might have been interested in. We didn't have the ability to do anything about it. The world moves on.

Speaker 2

But we'll keep our eyes open. And if the right thing comes along, then we consider making a move. But again, right now, there's nothing on the agenda.

Speaker 4

Yes, nothing imminent. No, I get that. Appreciate the added color there. And then second, I was wondering if you could just give a little more color on what you guys are thinking in terms of some of these new promotional programs. What are you kind of looking at here?

Speaker 4

And it sounds like we could see a little bit of increase in the marketing spend to push things along.

Speaker 2

Yes. So the biggest problem I think we have is hardly anybody knows about us. We've just not been able to make much noise in the marketplace. And so you're going to see a pretty significant increase in our visibility in the form of relevant social media platforms, engagement with influencers and folks like that. The good news is it doesn't cost a lot of money, but it's money we weren't spending before and now we have a little bit of flexibility to do more.

Speaker 2

So I'm pretty excited about the potential for that.

Speaker 4

Okay, perfect. And then last one from me. You mentioned the 20 new Shield clients signed during the quarter. What is the size of the typical Shield contract these days? Just trying to understand what 20 new customers means and understanding that maybe what that means today is not what it means twelve months from now.

Speaker 2

Right, exactly. Well, this wasn't 20 in the quarter, this was 20 for the year. Sorry, for the year. Yes, but I just want to be accurate here. They're all over the map, Scott.

Speaker 2

And that's one of the challenges that we've had is, how do we characterize what industries are we in, what's the size of deals. They've literally been all over the map and they go as big as annual couple of $100,000 down to $5,000 or $10,000 So we just don't have enough volume at this particular point to really fully characterize that. I will say we focus the sales team on exclusively larger deals going forward and our pipeline now reflects a significant increase in total deal size that's much larger than it historically has been when we were just trying to find any customer we could on our meager, what I'd call meager sales efforts. We now have an opportunity to go much bigger and we've also got the products to support it now. So between the two, I think I expect a significant improvement.

Speaker 4

Okay, perfect. Well, I appreciate the time guys. Thank you very much.

Speaker 2

Thanks.

Operator

Thank you. The next question is coming from Ed Woo from Ascendiant Capital. Ed, your line is live.

Speaker 5

Congratulations on all the progress you're making. My question is, what are you seeing and what

Speaker 6

are you hearing out there in

Speaker 5

terms of the sales cycle for cybersecurity software, especially on the federal side with the scenes that there's quite a new administration and making some big changes over there?

Speaker 2

Yes, I think it's a fluid environment at this point is the best use word I can use to describe it. We've heard over and over and over again that cyber is one of the focus areas and isn't going to be subject to the same sort of reductions that you might see in some of the other areas. Fortunately, most of our contracts and good customers are not in a renewal cycle period right at this particular point. So we don't think there's any short term impact. What I will tell you is and I've learned this during my time in the federal government, Whenever there's change, it takes a while for new leadership to make decisions about what they're going to prioritize or change in terms of their spend and the career staff that are in those agencies often wait for direction in terms of initiating any new stuff.

Speaker 2

So I guess for us what that means is, it's steady as she goes for the stuff that we have and there might be a slightly elongated cycle for new stuff. But once that kicks into gear, I suspect that we're going to see an uptrend. And this administration does look like it's moving faster than others may have in the past in terms of the areas they want to focus on. So overall, I read it as good for our company. And but at the end of the day, we'll have to wait and see.

Speaker 5

That sounds great. But what about the environment for your enterprise customers? Do you has there really been any change in the last three months? Are people a little bit more concerned or about the same as they were?

Speaker 2

Well, I think concerns are increasing as they have been for several years. I mean, if you look at the rate and the frequency of cyber attacks, it just continues to go up. And the core factors that have been impacting that are the imbalance between the resources available to those who want to launch attacks, getting less and less expensive, easier to acquire. And then the cost of defending, there's still a tremendous imbalance. It's like fighting with one arm tied behind your back.

Speaker 2

So the attackers have an advantage. And I think most organizations are realizing that they're going to have to continue to improve their efficiency, effectiveness and probably their spend in order to maintain quality defenses. So again, I think it portends well for our industry as a whole. And then lastly, I do see a lot of consolidation that will occur in the space. I'm in touch with a lot of PE firms and they seem to believe that same thing.

Speaker 5

Great. Well, thanks for answering my questions and I wish you guys good luck.

Speaker 2

Thanks, Ed.

Operator

Thank you. The next question will be from Harold Zirkin from HC Investments. Harold, your line is live.

Speaker 6

Thank you. Congratulations, Tony, for striking while the iron is hot and being able to raise the $15,000,000 when it was possible. The question is $15,000,000 in cash is an asset in and of itself, invested in treasury bills could be earning over 4%, dollars six hundred thousand a year. Could you tell us where that $15,000,000 is today and if it is in fact being productive?

Speaker 2

It will be productive. It's a little less than $15,000,000 at this point because we've paid off some accounts payable and other kinds of things. And we do have ongoing deficit. But Kim's hard at work and we're going to invest it wisely. So I think your desire for us or your advice is spot on and it's exactly what we're going to do.

Speaker 6

Can you tell us if you're going to use any of that money to hire additional salespeople to help us goose up the sales process?

Speaker 2

Yes. We have a couple of positions in the budget for this year. So it is likely that we'll do that. Right now, we're working with a team on our whole, as I mentioned on the call, channel sales process. And one of the deliverables for that is helping us find deliverables for that work is helping us find the right person to lead our channel sales efforts.

Speaker 2

And then in turn that person will have a big say in terms of additional hiring that we may choose to do to build out that capability. And some of it will do with employees and some of it will do with hire for contract type resources. So it won't all be employees.

Speaker 6

Okay, good. And the last question is, you have 20 shield clients who have many of them have been with you now for over a year. Can you give us a rough idea of how many of those 20 have increased their participation in revenue obligations over the past year? Thank you.

Speaker 2

Yes. So what we announced on the call was 20 new Shield logos in 2024. So we had a small number before that. I'd say roughly a third of them have increased their commitment to us. And the others about a third, it's too early to tell, but we think there's some expansion capability or likelihood.

Speaker 2

And then there's about a third that I think are probably going to stay pretty close to where they are right now. But that'd be my rough guesstimate in terms of how those play out.

Speaker 6

Thank you very much. Good luck for the coming quarters.

Speaker 5

Thanks. Thanks.

Operator

Thank you. And the next question is coming from Howard Bruce from Wellington Shields. Howard, your line is live.

Speaker 7

Thank you. Tony, I appreciate your optimism on the call, certainly is well warranted. When you talk about opportunities, can you discuss the size of the opportunities you're talking about? One, and two, the geographic areas?

Speaker 2

Sure. So as I think you know, we've been very active in Asia Pac, Philippines in particular. And then now we're also increasing our focus in The U. S. Obviously.

Speaker 2

I've refocused the sales team's efforts to be deals that are $100,000 or more. Everything else below that should come through our resale partners. And so we now have calls every other week with those resale partners on those lesser deals and our team is focused on $100,000 up. And so when I look at our pipeline, what I see is the change in the mix. We were spending a lot of time on a lot of small deals prior to this and obviously that doesn't make sense.

Speaker 2

So the ones that we're really focused on and putting our energy into are ones that are 100,000 plus and we have several that are multiples of that in the pipeline. So that's kind of where our focus is.

Speaker 7

That's all I have for the moment. Thank you.

Speaker 2

Great. Thanks Howard.

Operator

Thank you. And there were no other questions in the queue at this time. I would now like to hand the call back over to your host, Mr. Tony Scott.

Speaker 2

All right. Well, thanks everyone. Again, appreciate the support and the questions. I really am looking forward to the next few months. I think it's a breakout period for us.

Speaker 2

We've got way more flexibility and room to maneuver than we've ever had since I've joined the company. I think if you talk to any of our staff, you'll see a renewed and reinvigorated esprit de corps for the work that we can do in the future

Speaker 4

in front

Speaker 2

of us. And so I'm really excited about it. The team is excited. And we do think that a lot of the things that we've been working hard on for the last two years in particular now have a chance to blossom and grow. So looking forward to talking to you all soon and thanks for all of your help.

Speaker 2

Take care.

Operator

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.

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Intrusion Q4 2024
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