Intrusion Inc (INTZ) 2011 Q1 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Intrusion Inc.

first-quarter 2011 financial results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions).

I would now like to turn the conference over to Mr.

Mike Paxton, Chief Financial Officer.

Mr.

Paxton, please go ahead.

Okay, thanks.

Welcome to this afternoon's call to review Intrusion's first-quarter 2011 financial results, and discuss our business.

Participating on the call with me today will be Ward Paxton, Chairman, Co-Founder, President and CEO; and hopefully, Joe Head, Vice President and Co-Founder of the Company.

We're waiting on Joe to join the call right now.

Ward will discuss Intrusion's financial results and current activities, and Joe will give our current business update on other ongoing projects.

And we will be glad to answer any questions after our prepared remarks.

We distributed our earnings release at approximately 3.05 pm, Central Time today.

A replay of today's call will be available at approximately 6.30 pm, Central Time tonight for a 1 week period.

The replay conference call number is 800-642-1687; at the replay prompt, enter conference ID number 67111868.

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

Please be reminded that during this call, including the question-and-answer session, we may make forward-looking statements with respect to financial results, business strategies, industry trends, and certain other matters.

Forward-looking statements are based on management's current expectations and are subject to risk and uncertainties.

We may be discussing our current outlook for the year 2011.

These discussions are based on our own internal projections.

These projections could change prior to the end of this quarter or the period discussed.

Of course, actual results may differ substantially from projections.

Information in this conference call related to financial results, projections, and other forward-looking statements is based on current expectations, and we expressly disclaim any responsibility to update forward-looking statements.

Many factors could cause our projections not to be achieved, including the uncertainties and lack of visibility caused by current economic and market conditions and other factors which can be found in our most recent filings with the SEC, including our most recent annual report on Form 10-K, filed in March of 2011.

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

Thanks, Mike.

Welcome to Intrusion's first-quarter conference call.

It's good to have this opportunity to talk with you today about the results and progress of our Company.

Even though the numbers don't show it, the first quarter was outstanding, in that we significantly broadened our business potential for later this year.

As most of you know, Intrusion primarily develops and markets entity identification and data mining and analysis products.

The majority of our revenue comes from our TraceCop family of products for identity, discovery, and disclosure.

In addition, we are developing a new data mining and analysis product family we called Savant, which we expect to begin contributing revenue later this year.

As you know, a significant amount of our business comes from the US government, which has caused our business to be down for the past 2 quarters because of Congress' inaction in approving the 2011 budget.

Now that Congress has finally approved the 2011 budget, we expect to begin booking new business again.

Before we look in-depth at our sales and marketing activities over the past 3 months, let's take a quick look at the first quarter's financial results.

In spite of Congress' inaction, we were able to book $900,000 of orders in the first quarter even though most of the business we were pursuing was delayed.

Our total revenue in the first quarter was $1 million, compared to $1.5 million in the first quarter of last year.

The $1 million in revenue required about 10 people in the cost of goods.

The 5 additional people required for last year's first-quarter revenue were shifted to R&D during this year's first quarter, giving us a total of 9 people in research and development in the first quarter.

This incremental R&D effort was directed to developing new TraceCop capabilities.

We expect the temporary increased R&D effort to be reversed this quarter.

In addition, we are expanding our personnel level at this time.

We added an additional salesperson and additional engineer in the first quarter and are currently planning on hiring 7 additional data analysts -- 7 additional data analysts in the second quarter.

We have already hired 4 new analysts and are looking for 3 more.

We plan to add 2 more salespeople later in the year.

Gross profit margin slipped a little in the first quarter to 62% of revenue compared to 64% of revenue for the first quarter last year.

We were slightly less efficient in providing results at the lower revenue level in the first quarter and expect a little improvement as revenue increases.

Operating expenses in the first quarter were up $200,000 over the first quarter of last year due primarily to the shift of costs from the cost of goods to operating expense and the addition of the 2 new people I just noted.

The $500,000 reduction in revenue and $200,000 increase in operating expense translated to a $400,000 net loss in the first quarter compared to a $200,000 net profit in the first quarter last year.

We still have no revenue coming from Savant, but are expecting first sales within the next 6 months.

We continue to develop features for Savant, which include natural language processing, which facilitates our knowledge management application.

We plan to hire a full-time dedicated salesperson for Savant commercial sales later this year.

Now we had hoped to have Joe Head tell us a little bit about the current sales.

Joe, were you able to join us?

He has not joined yet.

All right.

Joe is in Washington, DC, on a sales trip this week, and he was going to attempt to join our call.

But since he hasn't, well, we'll just continue.

I'm really excited about all the new projects we are pursuing now.

I'm confident that we will see many of these projects turn into revenue soon.

The past 6 months have been very frustrating, in that enormous work has been focused on growing our business and we are confident that we would have been seeing growth, if not for the congressional delays.

The new people that we have added and are now adding are expected to contribute to our growth over the rest of the year and beyond.

Our personnel level has been approximately constant over the past 3 years as our revenue has grown about 15% per year.

We're in the process now of increasing our personnel level 35% as we've just discussed.

Our goal this year is to break out of the slow-growth trough that we've been in the past 3 years.

The signs are good.

Our team is dedicated, working hard, and producing outstanding results.

And I'm confident that we will see good things in the future.

Thank you for your patience, your interest, and your support.

Mike?

Okay, Julienne, at this time, could you please remind the participants how to queue up for questions?

Certainly.

(Operator Instructions).

Walter Schenker, MAZ Partners.

It might be the first and only.

We'll see how many.

If Joe couldn't make it, then I feel like -- maybe no one's going to make it.

How are you doing, Walter?

Good.

I'll see you guys next week at the annual meeting.

Good.

The quarter was, clearly, what I would have expected given the fact that the same problems that plagued the prior quarter, the December quarter, continued into this quarter.

That being said, I would have hoped or thought, with about 3 or 4 weeks -- I think it is -- since the budget was passed, that maybe -- that we would've have seen some initial movement on the very large number that Joe referred to in prior calls of contracts that were -- I don't want to call them exactly queued up -- but were very likely to turn into business by the time of this conference call.

Since I thought a number of these people tentatively had their funding and had their paperwork done.

You want to say where we are in getting some of those converted into actual contract projects?

Yes.

Walter, right now, we have 6 projects that are in the final stages.

Everything's approved.

They are in the process of going through the procurement cycle.

You might note that every government contractor in the world was in this delay over the last 6 months.

And so the backlog of contracts to come out is huge.

And that, of course, is what has slowed down the activity.

But we haven't seen anything but positive results.

In addition to those 6 projects where everything is in the final stages, we have added 3 or 4 more new exciting projects since the last conference call that we expect to translate to orders sometime in the next couple of months.

So the activity level is very good.

And therefore, and I'm smiling, but having done this for enough conference calls now.

In 3 months, now that the dam, in theory, is no longer there and people have enough time to process these contracts, by the next conference call, if I take 6 and add 3 or 4, I would hope to have something approaching 10 new contracts having been completed and announced either during the quarter or at the next conference call.

I realized they won't all be producing revenue immediately in the quarter we're in.

Well, the number of new projects, as I indicated, that are in the final queue is 6 and we, clearly, expect some additional ones to come to us here in the next couple of months.

Okay.

And just one other question on Savant.

It's I guess close to 9 months since you first introduced Savant, I understand you have made additional changes to make it more effective and productive for potential customers.

Clearly, there are data breaches -- and you can ask Sony about this -- in the world going on with great regularity.

Read them in the paper everyday, aside from the small or medium-sized ones which I'm sure the government isn't admitting to.

I still don't exactly understand why we can't break through for the first or second Savant client.

Well, it's clearly related to us being able to put resources on that step, and we've not been able to so far.

Hello?

I'm here.

Okay.

And the other thing is we have installed Savant in a trial situation with a customer a couple of months ago and expect to be able to make a public announcement about it sometime in the next couple of months.

Which hopefully will not be that they kicked you out.

Well, we certainly hope not.

Okay.

Thanks a lot.

Thank you, Walter.

(Operator Instructions).

And there are no further questions at this time.

Okay.

Thank you.

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, you can call me at 972-301-3658, or e-mail MPaxton@Intrusion.com.

Thanks again.

Thank you all for participating in today's Intrusion Inc.

first-quarter 2011 financial results conference call.

You may now disconnect.