Intrusion Inc (INTZ) 2008 Q4 法說會逐字稿

Good afternoon.

My name is Kristy, and I will be your conference operator today.

At this time I would like to welcome everyone to the fourth-quarter 2008 earnings call.

(Operator Instructions).

Thank you, Mr.

Paxton, you may begin your call.

Thanks.

This is Michael Paxton, Chief Financial Officer for Intrusion Inc.

Welcome to this afternoon's conference call to review Intrusion's fourth-quarter 2008 financial results and discuss our business.

Participating on the call with me today will be Ward Paxton, President and CEO; and Joe Head, Vice President, Strategic Projects.

Ward will discuss Intrusion's financial results and current activities.

Joe will give a current update specific to the TraceCop product line.

We will be glad to answer any questions in the question-and-answer session after the prepared remarks.

We distributed the earnings release around approximately 3 PM Central Time.

A replay of this conference call will be available at approximately 7 PM Central Time today for a one-week period.

The replay conference call number is 800-642-1687.

At the replay prompt enter conference ID 86118428.

In addition a live and archived audio webcast of the call is available at our website, intrusion.com.

In today's call, Company executives may be making several forward-looking statements with respect to financial results, business strategies, industry trends, and certain other matters.

These statements are made under the Safe Harbor provisions of the Private [Security] Litigation Reform Act of 1995 and involves risk and uncertainties which could cause actual results to differ materially from those in the forward-looking statements.

Additionally, we may be discussing our current outlook for the first-quarter 2009 and calendar-year 2009 which is based on our own internal projections.

These projections are based on limited information available to us now as we are early in the current quarter and calendar year.

It is common for our internal projections on which we base our guidance today to change, and these projections could change prior to the end of this quarter and calendar year.

Of course, actual results may differ substantially from projections.

And the Company assumes no obligation to update information concerning our expectations.

Many factors could cause our projections not to be achieved, including but not limited to the uncertainties and lack of visibility caused by the current economic and market conditions, and other factors which can be found in our most recent filings with the SEC including the section titled "Factors That May Affect Future Results of Operations" in our most recent 10-K filed in March of 2008.

If you need a copy of today's press release or Intrusion's prior SEC filings, please give us a call or visit our website at intrusion.com.

Now I will turn the call over to President and CEO, Ward Paxton.

Thank you, Mike.

Welcome to Intrusion's fourth-quarter and year-2008 conference call.

Thank you for joining us today.

2008 was an outstanding year in the development of Intrusion.

As you know, Intrusion is a restart and in most ways resembles a successful startup.

The dramatic improvement that we achieved in 2008 was a major step toward our success.

These results were driven by outstanding efforts from our TraceCop sales and engineering teams.

After a normal, slow first quarter in 2008, we have now achieved three consecutive profitable quarters, and more importantly have begun developing important relationships with new potential customers and sales partners.

During 2008 our two oldest major customers for TraceCop continued buying our products, and one new major customer emerged along with several new potential major customers.

One of our goals for 2009, probably the most important goal, is to accelerate the number of new major projects which we are working on.

As you know, a lot of our business is with the US government and is classified.

Joe Head, co-founder and Vice President, Intrusion, will discuss our TraceCop business in a few minutes.

But first let's review our financial results for 2008.

Revenue for the fourth quarter of 2008 was $1.2 million compared to $0.5 million for the fourth quarter of 2007.

Revenue for the year 2008 was $4.1 million compared to $3.5 million for 2007.

Net income for the fourth-quarter 2008 was $8,000 compared to a net loss of $800,000 for the fourth quarter of 2007.

Net loss was $0.8 million for the year 2008 compared to $2.4 million for the year 2007.

The quarterly results are very volatile, and hence you shouldn't jump to any conclusion with the 138% growth in revenue in the fourth-quarter 2008 over the fourth-quarter 2007.

On the other hand, the 18% revenue growth for the whole year is a positive point.

Perhaps, the most important result is the three consecutive profitable quarters racked up in the second, third, and fourth quarters.

An additional important metric and outstanding result last year was gross profit margin.

Gross profit margin was a 68% of revenue for the fourth quarter and 67% for the year 2008 compared to 61% for the fourth quarter and year 2007.

Operating expenses were $771,000 for the fourth quarter, a 31% reduction from fourth-quarter 2007.

For the year 2008, operating expenses were $3.5 million, a 28% reduction from 2007.

Our debt at December 31, 2008 was $480,000 compared to $100,000 at the end of 2007.

Perhaps more important was the reduction of debt from $1,310,000 at the end of the third quarter of 2008 to the $480,000 at the end of the year.

This debt reduction was related in part to the increased and deferred revenue from $205,000 at the end of the third quarter to $1,090,000 at the end of the year.

Reaching profitability is clearly an important milestone in our development.

But even more important is the continued development of our products and the outstanding results of our sales and marketing efforts with the increase in our customer base that we have experienced.

We have been working hard at selling, and truly the made measurement of our success in 2009 will be sales growth while maintaining profitability.

As you know, we have two different product families, TraceCop and Compliance Commander.

TraceCop is our product for tracing the source of cyber-based attacks.

Currently we sell TraceCop almost entirely to the US government.

In the future, we plan on some non-government customers as we branch out as a result of our growth.

Compliance Commander is used to help prevent the loss of sensitive data to the Internet.

We have sold Compliance Commander primarily to banks, credit unions, and health-care entities.

More than 80% of our revenue in 2008 came from our TraceCop products.

We sell TraceCop directly to the US government and have been developing resale partners to help grow our customer base.

We sell Compliance Commander primarily through resale partners.

We're making good progress on our TraceCop resale partners development and expect a significant amount of TraceCop sales to be generated by this partnership in 2009.

Now let's hear from Joe Head about current activity with TraceCop, marketing and selling, things that we are focusing on.

Joe?

Thanks Ward.

As on the past two conference calls, the business area we have created around TraceCop has continued to keep the Company profitable.

As we reported in November, we booked another $2.4 million of business for TraceCop.

Putting that in perspective -- a month of orders totaling half the revenues we did in 2008.

Keeping tabs on our progress toward expanding the customer base and holding onto previous customers -- as Ward mentioned, we have three legacy customers for TraceCop that are currently under contract with a smaller fourth one that we expect renewal in April.

I reported in the last conference call that we were expecting all four long-term TraceCop customers to continue doing business with us.

They have stayed solid, and we expect them to continue.

Our fourth major TraceCop customer was announced last summer, and we reported that this customer's initial order would run through March 2009.

We've accelerated a few of our efforts, so the previous funding will now run out in February -- this next month -- and they confirmed that they are pleased with our performance and will renew for another year.

We've recently quoted expansion of this business, which represents upside beyond renewal, at previous revenue levels.

As we've reported before, there are a number of new projects we are working on.

On my current list I have 12 major projects that we are working toward -- and we define major projects has about $1 million revenue a year, each.

Eleven of the 12 are from new customers.

On the topic sales force expansion, last fall I reported that we've gone from one to three Intrusion folks marketing our TraceCop products.

These two new guys are up to speed with the products and are multiplying our efforts by supporting more customer interactions.

We are initiating a push into marketing TraceCop to new parts of the DOD, areas where we understand there's a need for TraceCop and ample budgets to support additional subscriptions.

As previously reported, we've already engaged some of our lead engineers as account-level engineering contacts to further expand our customer-facing capabilities, giving our customer more connection time with the Company and increasing our successes and wins over their projects -- or on their projects.

This is doing great and has achieved the results I was desiring with the customers liking the increased attention from dedicated teams.

This also frees up our lead sales staff to spend more time on developing new business.

The major defense contractor has continued to engage with us, and we're pursuing several of these large projects with them, as Ward mentioned.

They represent a good expansion of the number of feet on the street promoting our projects -- our products to new customers outside of our traditional base.

The number of new large projects is up by several from the last quarter.

The new administration in Washington, the transaction has -- transition has not affected these projects.

My emphasis in the coming months will be on seeing them emerge from procurement and then to begin executing deliveries for these new customers.

Ward?

Thanks Joe.

We are really excited about the progress with TraceCop and look forward to a terrific 2009.

In summary, we have had three good, profitable quarters in a row -- definitely a good start in our transition from startup to early microcap company.

We have many hurdles in front of us but feel that we have a huge opportunity and good momentum.

Our challenge in 2009 is to achieve significant growth in revenue, and we're doing everything we can to meet this objective.

Our sales and engineering teams are outstanding and are working hard to achieve our goals.

We can count on them to be successful.

Thank you for -- you stockholders and interested investors for your continued interest and support.

We look forward to an outstanding 2009.

Mike?

Operator, could you please remind the participants how to queue up to ask questions?

Certainly.

(Operator Instructions).

Walter Schenker, Titan Capital.

Actually, the important question is, will there be a second question by anybody else?

Joe, you don't see the e-mails I send to Ward possibly, but the last one said something along the lines of -- we've had multiple quarterly conference calls, and we keep talking about more and more major customers as possible customers, and we keep -- I'm extending what I said -- and we continue not to close any.

I'm now into my third conference call of -- the infectious Ward Paxton enthusiasm -- very enthusiastic -- and the third -- and we've closed one major -- one customer in the last six to nine months.

I'm still trying to understand why "near term, soon" doesn't turn into like a customer a quarter or something, or two customers.

So could you give me some better feel for what breaks the thing open and we actually start getting some business?

I think the best comment is -- there's four of these that I've expected to be imminent for about 14 months now, and there's plenty of good reason to show that they've moved forward, and I'm expecting those sooner than later.

But like you know, government procurements take a long time sometimes.

The way I can measure it though is, the folks say, hey, the money is preserved, the budget is here, and nothing's changed.

And I think we're making all the strides we need.

None have gone away and none have canceled, which is good.

Have you pointed out that Ward is getting older and we want him to feel really good one of these (multiple speakers)

Exactly.

Yes.

No, I think everything's -- in spite -- what you said there I think is well taken.

We have closed two of the new ones on these calls.

One was large.

One was small.

The small one is fixing to renew again at the same level.

So we have had two close, and I expect five more reasonably soon.

Okay -- which would make me very happy, probably make Ward very happy.

And me too.

Walter, just one comment.

This year with several of the projects taking longer than we had hoped, it's -- it isn't a first-time experience with government business of it taking a lot longer than you normally experience so that we are disappointed that it didn't come quicker, but it isn't the first time in life that we've had the experience.

Well, if you've been what I do, which is the investment business, for the last year you've had lots of delays and disappointments.

You used to also discuss some of the smaller contracts also being in the queue.

We've concentrated on the large ones, the 12 large ones.

There are also smaller people floating around?

Yes.

Yes, there is a little larger list than the 12 of minor projects, and I guess the way I would characterize it is a bunch of the small ones have turned into larger in the last four months because of incremental deliveries and sample things that we've done for them.

So if anything, it's not that the total activity has gone down.

I just sort of decided to focus on the big ones in today's narrative.

If in fact -- and I'm [not] trying to give you a hard time.

But if in fact we go another three months and we don't close any of these, you will be extremely surprised?

We've already been so surprised, but I'm trying to add an adjective.

That's a true statement.

Lastly, we didn't bother talking much about Compliance Commander.

It's clearly a tough world for some of those people.

Do we continue to sign some business?

Yes, we're pursuing some business there kind of selectively.

We are also looking at new and different ways to capitalize on the technology that's -- that we have in Compliance Commander.

The basic engine there is an analysis engine for data -- network data, and in the particular thing of Compliance Commander -- and then earlier with the SecureNet -- we used that traffic flow analysis for at these two security things.

We're looking now at some other applications of the basic technology with some partners.

Okay.

And we're still talking to third-party sellers to --

Yes, we are.

-- see if we can get somebody to actually start selling that?

We continue to interface with a small group of third-party resellers.

Then last comment -- the deferred revenue which you made reference to and obviously helped pay back some of the loan -- which probably makes you happy --

Yes.

Is one contract?

Or just the normal timing of some of these things?

It seems like a lot of money.

Yes.

One large contract where we received prepayment for a year's activity.

Oh.

That's always nice.

Yes.

Again, for the -- especially for the person who is lending the money to the Company.

Yes.

Okay.

Again Joe, Ward, hopefully in three months -- less than three months we will have signed a few contracts.

Yes.

That's the plan.

That's the plan.

Thanks a lot guys.

(Operator Instructions).

We have no further questions in queue.

Thank you operator.

At this time we would like to wrap up the call.

Thank you for participating in today's call.

If you did not receive a copy of the press release or if you have any further questions, our phone number is 972-234-6400.

Thank you.

This concludes our conference call for today.

You may now disconnect your line.