Intrusion Inc (INTZ) 2012 Q2 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the Intrusion Incorporated second-quarter 2012 financial 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).

Thank you.

Mr. Mike Paxton, you may begin your conference call.

All right.

Welcome to this afternoon's conference call to review Intrusion's second-quarter 2012 financial results and discuss our business.

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

Ward will give a business update and I will discuss Intrusion's financial results.

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 our earnings release at about approximately 3.05 P.M. Central Time today.

A replay of today's call will be available at approximately 6.30 P.M. tonight for a one-week period.

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

At the replay prompt, enter conference ID 13792913.

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 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 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 2012.

Now, we'll turn the call over to President and CEO, Ward Paxton.

Thank you, Mike.

Welcome to Intrusion's second-quarter conference call.

It's good to be with you today to discuss our progress and results.

It was terrific to regain profitability in the second quarter.

We were able to achieve profitability in the second quarter as the result of a 39% sequential revenue growth over the first quarter.

The almost $2 million revenue in the second quarter was the highest quarterly revenue in quite some time.

TraceCop annual revenue has been steadily growing over the past five years, growing from $2.4 million in 2007 to $5.3 million last year.

Our revenue growth in the second quarter was the result of booking $2.7 million of orders from both new and old projects.

Practically all of our revenue at this time is from TraceCop products and services.

As you remember, our TraceCop family of products and services is used to discover and identify bad guys.

We expect this requirement to continue to grow for a long time.

In addition to TraceCop, we are in developing a new data mining and analysis product that we call Savant.

To date, we have not been able to apply selling resources to Savant, but as TraceCop revenue and profits go, we will add sales personnel and begin selling Savant.

Now, let's review the second-quarter financial data that we released a little over an hour ago.

Mike Paxton, our Chief Financial Officer, will discuss the financial results for us.

Mike?

Yes, I wanted to go over the second-quarter 2012 financial highlights from the press release.

Revenue for the second quarter was $1.95 million compared to $1.4 million sequentially and $1.1 million for the second quarter of 2011.

That is 40% and 80%, respectively, increases.

Gross profit margin held steady at 60% in the second quarter with gross profit margin being 61% in the first quarter of this year and 62% in the second quarter of 2011.

Our goal is to achieve gross profit margins of around 65%.

Reaching this goal for gross profit margin improvement depends mainly on our product mix and efficiencies achieved by improving our sales volume overall.

Intrusion's first-quarter 2012 operating expenses were $1.1 million compared to $1.1 million for the first quarter of 2012 and $0.9 million for the comparable quarter in 2011.

Net income for the second quarter was $212,000 compared to a net loss of $352,000 in the first quarter of 2012 and $1.07 million for the second quarter of 2011.

Our goal this year has been to get back in the black by achieving a net income.

We did that in the second quarter and now must focus on the remainder of the year.

We continue to have a net loss of $140,000 for the six months ended June 30, 2012.

We'll be working diligently to overcome this during the remainder of the fiscal year.

Now, I'll turn the call over to Joe for a project update.

Thanks, Mike.

For the past year, we've continually focused on our business development around groups that are expected to thrive during potential downturns in different budget constraints.

The good news is that our strategy has not only worked in bringing in new business for current quarters, but I believe it leaves us in a much better position over the next few years.

This past quarter continued to encourage us with good results on the new and old customer business fronts.

As has been the trend for many years, our old customers have a low turnover rate with renewals happening year after year.

We continually interact with potential new customers but that activity has accelerated in the past six months with a few customers placing additional initial orders in less than the six months to two years it has taken to develop relationships with our current customers.

We still plan on putting sufficient effort to grow long-term relationships with new customers the hard way -- that means the slow, long development that we are used to -- but are pleased that a number of new and potential customers have developed in just a few months of relationship.

About three-fourths of the expected orders we are currently working are with new customers.

We are continuing to see more of our team move into the primary relationship with one or more customers, which gives them more attention, better service and expands the ability of our organization to engage with new potential customers while keeping the current customers happy.

We enjoy a very good relationship with all of our customers.

They like our work and the challenges of staying ahead of the bad guys make Intrusion a fun place to work.

We look forward to seeing our business continue to grow as we see our potential new customers come under contract over the coming months.

Thanks, Joe.

The new projects are really exciting and give us opportunity for continued growth.

We had a great quarter.

The outlook is bright and all of our team is performing at a very high level.

We are excited about the future.

Thank you for your interest and support.

Mike?

Okay, operator, can you remind the participants how to queue up for questions?

(Operator Instructions).

Walter Schenker, MAZ Partners.

Well, it's much better to make money then lose money.

I guess we all agree on that, so congratulations on getting back in the black.

The contracts that you signed and gave a dollar value to, you would expect those on an annual basis to be larger than that total?

Since sometimes you sign contracts with people for less than a full year but with the expectation there is a periodic renewal?

Correct.

I'd say most -- the majority of our contracts, they fund a year at a time, although a few of them have tripled in a quarter or a half at a time.

I think we have two or three that dribble in and most throw the whole yearly dose on at once.

Okay, because four contracts -- I might have thought four contracts would, on an annualized spaces if at least two or three of them were large contracts, would come in at $3 million to $4 million, maybe even more than $4 million on a full annual basis as to --

Right.

-- how they may play out.

You are talking about the first-quarter contracts, Walter?

The ones that were referred to that were signed in the quarter.

Yes.

I think that was the first-quarter contracts that were -- I'm sorry -- it's the second quarter --

Second quarter, right (multiple speakers).

I'm sorry, you're right.

That was two old, two new, and I know one of them was a partial year funding, one of the new ones.

Yes.

I do not remember the other -- which ones -- how much of the year they funded.

I can check that and let you know.

Okay.

We are expecting or hopeful, hopeful, Mike, I don't want to make you make a forecast.

Last year the third calendar quarter turned out to be a pretty strong quarter as people tried to spend money before they lost it.

We would be hopeful that the current quarter in the August/September period will again get us some extra business?

Yes.

And we're tracking quite a few for this quarter.

Okay.

So we would hope to have, before we get into whatever happens with that fiscal cliff, if there is a fiscal cliff and an inability of Congress to do anything and we can go on and on about the problems with Washington, but we would hope to be in a position, when this fiscal year ends, to have booked at least a decent amount to hopefully a very significant amount of business relative to where we've been to help carry us through if there is a dead period over the ensuing quarter to two quarters.

Correct.

I guess that's always what we hope.

But --

You know, it's interesting, Walter.

The Congress haven't passed it yet, but they have agreed, both in the House and the Senate, to pass a six-month-long Continuing Resolution to push out any further considerations until after the election and actually, after the change of administration.

Takes us to March.

Wonderful people --

Yes.

-- wonderful people in the government, how they handle things in a responsible manner.

Yes.

Right.

How -- at what point do you think we can actually try and make some progress, Joe, with Savant?

We've got a number of key places that we're using it to do diagnostics on networks.

But like Ward says, I think the commercial appeal there with some of the large integrators is there.

And we've got one ex-Cisco buddy that has worked a lot in the Cisco Juniper world, and they've -- he's indicated that he thinks there's a lot of appeal in the telco space.

So we've got him doing a little preliminary spade work for us.

As Ward mentioned, I think the product is ready and we've just been putting all hands to making sure we've got our end of the year, end of quarter stuff and get profitable on the main business.

I think that's the next thing on the agenda, is to expand that effort and go out commercial.

Okay.

And last question, since I'm sure there's a long queue of people waiting after me, at the annual meeting, Ward, you indicated that last year we had a number of -- we expanded staff with some additional professional people and that your goal or plan, depending on how the business did, what would be in the latter part of the year to further expand the support and sales staff.

That is still your expectation, that we will reach a level where you can afford to do that?

Yes, our plans are to definitely expand both the sales and the support staff here in the balance of the year.

Okay.

We've just recently hired one new analyst and are looking for some others, plus some salespeople.

So we're in the process now of seeking some additional people.

Okay.

Well, instead of screaming and yelling, which I've been known to do, you have a good quarter.

Let's just hope we can keep it going and expand upon it, which would make us all, and me as much as you guys, very happy.

So yes, go get them, Joe.

We're glad you and us are both happy.

Well for the moment, anyway.

Exactly.

Thank you, Walter.

That's looking good, Walter.

(Operator Instructions).

There are no further questions at this time.

I turn the call back over to the presenters.

Okay, at this time, we'd 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 further questions, you can call me at 972-301-3658 or e-mail MPaxton@intrusion.com.

Thank you.

This concludes today's conference call.

You may now disconnect.