Intrusion Inc (INTZ) 2011 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

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

At this time I would like to welcome everyone to the fourth quarter 2011 financial conference call.

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

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

(Operator Instructions).

I would now like to turn the call over to Michael Paxton, Chief Financial Officer.

You may begin your conference.

Okay, thanks.

Welcome to this afternoon's conference call to review Intrusion's fourth 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, Joe Head, Vice President and Co-Founder of the Company.

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

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

We distributed the 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 tonight for a one week period.

The replay conference call number is 855-859-2056.

At the replay prompt enter conference ID number 51316232.

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 questioning and answering 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 risks and uncertainties.

We may be discussing our current outlook for the current quarter and fiscal year 2012.

These discussions are based on our own internal projections.

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

Actual results may differ substantially from projections.

The information in this conference call related to financial results, projections and other forward-looking statements is based on current expectations and we expressly declaim - 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.

Thank you, Michael.

Welcome to Intrusions fourth quarter conference call.

It is good to be with you today to discuss Intrusion's progress, results and future.

The fourth quarter and total year of 2011 were very good for Intrusion, even though the financial results were not good.

The disappointing financial results were totally related to Congress' delays in approving both the 2011 and 2012 budgets.

The 2011 budget, which should have been passed before the end of September 2010, was not passed until the middle of April 2011.

The 2012 budget was not passed until the end of December last year.

Even though Congress' inaction damaged our financial results last year, we made giant strides in connecting with new customers which we expect will have gratifying results this year.

My partner, Joe Head, will discuss some of these exciting new opportunities in a few minutes.

As you know, most of our revenue comes from our TraceCop family of products and services.

TraceCop is Intrusions product family that provides abilities to trace the source of cyber-based attacks and other types of network crimes.

In addition to TraceCop, Intrusion has developed in the family of data mining products which we call Savant.

We made our first Savant sale in the fourth quarter and expect Savant sales to begin expanding soon.

More about new customers shortly, but now let's look at the financial results which we released about an hour ago.

Intrusions net loss in the fourth quarter of 2011 was $0.2 million on revenue of $1.4 million, compared to a net loss of $0.3 million on revenue of $0.9 million for the fourth quarter of 2010.

Included in the net loss in the fourth quarter of 2011 was $0.1 million related to the final closing of the Malaysia subsidiary.

Intrusions net loss for the year 2011 was $0.9 million on revenue of $5.3 million, compared to a net profit of $0.2 million on revenue of $5.6 million for 2010.

Most of the variance was due to our increase in personnel in 2011.

We added one sales person, one engineer and four data analysts to support our expected growth.

Timing was a little off, but we will need these people and more this year.

In fact, we currently are planning to add 10 additional people this year.

Three sales people, four engineers and three data analysts.

Gross profit margin has been about (costed) for the past two years.

Gross profit margin was 62% of revenue in the fourth quarter 2011, 61% of revenue in the fourth quarter of 2010 for the year, 2011 gross profit margin was 62% and for 2010, 63%.

Intrusions fourth quarter 2011 operating expenses were $0.9 million, about the same as the fourth quarter 2010.

For the year 2011 operating expenses where $4.0 million, up from $3.3 million in 2010.

In spite of the governments failure to approve the 2012 budget until the end of December, we were able to book $1.2 million of new orders in the fourth quarter covering six different projects.

Also we have booked $1.0 million of new orders so far this year.

The fourth quarter orders included two new projects and four old projects.

The orders this year include four projects, two new and two old.

Even though Savant has not generated appreciable revenue yet, the evaluations are continuing and we expect more orders soon.

The four main applications for Savant are knowledge management, security, data mining, and data flow monitoring.

We expect sales in all four applications.

Now let's have Joe Head tell us about activities out in the marketplace.

Joe?

Thanks, Ward.

In a time when many companies are quite nervous about ongoing funding for existing projects, we've been fortunate.

We've seen all of our renewals happen on schedule.

Better yet, we've been booking first-time orders for a number of new projects.

In the fourth quarter we booked $1.2 million, of which two were new TraceCop customers for a total of $402,000, and three were renewing TraceCop customers for $700,000.

These two new customers in the fourth quarter were results of over a year of nurturing new relationships with these groups.

So far in the first quarter of 2012, we booked just over $1 million in orders.

Of these Q1 orders, $406,000 was for two new TraceCop customers and $600,000 was for a TraceCop renewal for a customer of many years, in fact, our oldest one.

Both of these two new customers were referrals from existing customers and these went from introduction to orders in less than two months.

Thus, we continue to benefit from having a solid reputation for delivering results for our customers and from the excellent work from our expanded sales team.

We are currently tracking 11 new and 4 renewal projects for the next four months, all of which have been quoted.

Some of which may yet be entered this quarter.

Plus, working an additional 11 projects on the developmental stage pre-quote.

Since we sold into subscriptions, our offerings are excellent on delayed budget years.

These are years where, like this one, long-term labor contracts are not awarded on schedule due to congressional delays.

This creates a customer shift toward the purchase of data subscriptions rather than straight labor.

We are already seeding our customers with quotes and ideas on how we can help them with both their security and budgetary problems in early summer, ahead of the September 30 year end purchase deadline.

Our Savant trial, as Ward mentioned, has proven all we had hoped and has been well received.

One of the orders in Q4 was for the first Savant sale, a small order for evaluation.

I'm expecting the next round of Savant orders and installations this quarter and I'm planning on a Savant sales push to introduce Savant to new markets.

In addition, we are working with a wide variety of new customer opportunities with weekly meetings with a large number of prospective customers, attended by our four senior account specialists and supplemented by a number of subject matter experts from our engineering team.

It is not easy or automatic yet, but we have more prospects looking for -- more projects looking for money and planning to do business with us than at any time in recent years.

We'll just keep focused on keeping existing customers happy, aggressively following up on their referrals to other new customers and meeting with new prospects to keep expanding our base.

We are also quite ready to launch Savant into larger markets in the coming months.

Ward?

Thanks, Joe.

The activity in our marketplace is very exciting.

The new products -- projects that started in the third and fourth quarter last year should contribute significantly to our growth this year.

Sales of Savant should begin increasing soon and grow steadily.

Our team is performing extremely well.

Our productivity and creativity are outstanding and are yielding good results.

You, our stockholders, have been very patient as we've remade our Company.

We're working hard to reward your patience.

Thank you for your continued interest and support.

Mike?

Okay, Martina, can you please remind the participants how to queue up and ask questions?

(Operator Instructions) Walter Schenker, MAZ Partners.

A couple of questions, but first, as you are probably aware, Joe, I've been trying to get a hold of you for a while.

I would appreciate, on a public forum here, asking if you would give me a call?

Yes, sir.

Ward knows how to get a hold of me, I think.

I've got your number in my cell, and I've called you a couple times and missed you.

Okay.

Can you just walk through, whoever wants to do it, the delta from the September quarter to the December quarter?

And whether the fall-off was a function of less work done, losing projects, some deferral --?

Again, I'm just trying to understand since even in good times we seem to take two steps forward, one step back, at least on a gross number -- just take me from $1.8 million to $1.4 million.

Basically the difference was, we were expecting some orders in the fourth quarter that had gotten deferred because of the failure for Congress to approve the budget.

We didn't lose anything, we had some projects that we were expecting orders for and that we expected billings to be a result of those orders in the fourth quarter that didn't happen.

They will happen now.

If I thought you had roughly eight projects in total -- I like to call them customers, but you call them projects.

In the third quarter, you still have roughly eight, or you actually might have more now?

I think we have more than that right now.

But the size of the projects, of course, vary from time to time.

We have some new projects that are started out at a lower level, and will increase in size as we go through the year.

There used to be a pattern -- were you going to say something, Joe?

I'm listening.

There used to be a pattern of getting annual contracts -- you can get $1 million contract.

It now seems over the last few quarters as you talk about renewals, renewals are basically three-month renewals or something like that, so that someone who you might bill $1 million to, is only adding quarterly X-hundreds of thousands of dollars.

Is that in fact what's happening?

We've always experienced getting annual orders and then partial orders.

For example, this oldest and biggest customer we've had over the last three years has ordered one order for the whole year one year, and then orders broken up into three pieces in another year.

And as Joe just indicated, we had $600,000 that we've booked so far this month, or this quarter, on this particular customer.

That's about half of his expected annual buy.

It varies from time to time, Walter, in terms of whether or not we get an annual order or we get it broken up into three or four pieces.

You're hitting it right on the head there, Walter.

With the budget mess-up, and people borrowing money instead of us getting a whole $1.2 million for one of our annual, they split it into multiple pieces.

They've been slicing them by quarter.

It will still be the same revenue, just lumpy on the order side.

If you recall in the third quarter, we had a rather large total amount of orders booked, and in that we had a couple of big re-orders that were -- one of them was $1.2 million and the other was $800,000.

It varies, again, from time to time with the same projects.

Those two will renew in August.

Okay.

As you look at your 8, 10, 9, 11, whatever the number of projects are, it is almost all still DoD?

I know you're not going to tell me who it is, or we've succeeded in getting into some other areas of government or DoD related?

It doesn't actually have to be DoD.

Mostly DoD, but we are starting to actually look at some commercial ones as well now.

You understand, in terms of our business, we have direct government business, we have government business that goes through prime contractors, and we have business that we sell to commercial customers that might be doing business with the government, we don't know what they are doing with the product.

We do have a few things, Walter, on the horizon that are actually pure commercial, which are -- they are on my unfunded pile, but I'm planning on seeing some substantial commercial orders this year as well.

Just to move from TraceCop to Savant, can you give us some sense as to if things go -- I know you are adding a bunch of people, if things go the way you would expect, are we -- is Savant likely or possibly, I won't say likely, I have no idea what likely is, is Savant possibly at the end of the year able to be as big as TraceCop?

At the end of this year, I don't think so, Walter, but clearly we expect it to have steady growth as we go through the year.

It certainly has a $2 million potential this year with some upside.

At what point on Savant do you have a -- I know you have one fairly high-quality trial customer -- I don't know what the right term is, I sort of would have called them a beta site -- but trial customer.

At what point or how big does this have to get before you can actually go out to somebody else who has a lot more marketing muscle than you do, and have them try and actually build the business?

There will be two or three steps there, Walter.

First, we will be looking at the sales partners to sell the product with us.

That will be a good first step in terms of then going to what you might call an OEM situation.

That's downstream, at least into next year.

And lastly, the debt is largely from you, Ward?

That's correct.

Okay, and my tongue-in-cheek have to sort of make my last comment -- if you're actually going to add 10 people, hopefully you're prepared to loan the Company a fair amount of more money if we don't get the revenues?

We won't add 10 people if we don't see an increase in revenue, Walter.

I understand.

(laughter)

At the same time, we are certainly in the position to fund the necessary things that the Company has, and so that's not a problem.

Okay.

I look forward to speaking to you, Joe.

Thank you.

(Operator Instructions)

Are there any more questions?

We have no further questions in the queue.

Okay, thank you.

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

Thank you for participating in our call today.

If you did not receive a copy of the press release, or if you have any further questions, you can give us a call at 972-301-3658, or e-mail to MPaxton@Intrusion.com.

Thank you.

This concludes today's conference call.

You may now disconnect.