Intrusion Inc (INTZ) 2015 Q4 法說會逐字稿

Good evening.

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

At this time, I would like to welcome everyone to the Q4 and annual 2015 financial conference call.

(Operator Instructions)

Thank you.

Mike Paxton, you may begin your conference.

Okay, thanks.

Welcome to this afternoon's conference call to review Intrusion's fourth-quarter and annual 2015 financial results and discuss our business.

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, I will discuss financial results, Joe will give an update on ongoing projects.

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

We distributed the earnings release at approximately 3:05 PM today.

A replay of today's call will be available at approximately 6:30 PM Central Time tonight for a one-week period.

Replay conference call number is 855-859-2056; at the replay prompt, conference ID number 47380119.

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 based on our own internal projections for the current quarter and fiscal year 2016.

Actual results may differ substantially from internal projections.

We are not responsible to update any forward-looking statements.

Many factors could cause our projections not to be achieved, including 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, which was filed in March of 2015, and previous Form 10-Qs.

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

Thank you, Mike.

Welcome to Intrusion's fourth-quarter 2015 conference call.

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

The fourth quarter 2015 was about the same as the third quarter 2015.

Fourth-quarter 2015 orders booked totaled about $1.9 million compared to $1.8 million in the third quarter and $1.4 million in the fourth quarter 2014.

Orders totaled $7.4 million for all of 2015 compared to $7.1 million for all of 2014.

Savant orders totaled $1.3 million in 2015 compared to $0.9 million in 2014.

So moderate growth in orders booked last year, but significantly below our expectations.

We continue to pursue large resale partners for sales of our Savant product family, and continue to pursue sales to large commercial customers.

Our engineering efforts for Savant are focused on additional features for the product family as we move forward to improve and expand our ability for detecting advanced persistent threats.

We will discuss our sales activities later.

But now Mike Paxton, our Chief Financial Officer, will review our fourth-quarter and annual 2015 financial results that we released a little over an hour ago.

Mike?

Okay.

We will go over the fourth-quarter and annual 2015 financial highlights from the press release.

Revenue for the fourth quarter was $1.5 million compared to $1.8 million for the fourth quarter of 2014.

For the year 2015, sales were $6.8 million compared to $7.2 million in 2014.

Sales levels were obviously a disappointment over the entire year.

Gross profit margin was at 63% in the fourth quarter compared to 65% in the fourth quarter last year, and the annual margins kind of tracked that as 2015 was 63% compared to 65% in 2014.

Gross profit margin can be greatly affected by sales product mix or, in this case, pure sales volume being lower than expected.

In general, I'll go with 65%.

Intrusion's fourth-quarter 2015 operating expenses were $1.4 million compared to $1.3 million for the comparable quarter in 2014.

$5.4 million for the year 2015 compared to $4.9 million in 2014.

Operating expenses increased due to planned increases in research and development and sales and marketing expenses.

Net loss for the fourth quarter was $0.5 million compared to a net loss of $0.1 million for the fourth quarter of 2014.

And net loss was $1.2 million for the year 2015 compared to $0.3 million loss in 2014.

We fell short of our sales goals for the year.

We expanded our selling efforts for Savant sales in 2015.

We will continue this effort, but the sales cycle continues to be difficult.

We will continue to look at all options for sales growth, direct sales, or more likely through a large reseller or partner.

Now I'll send it back to Ward.

Thanks, Mike.

Now Joe Head, my partner, co-founder, and Senior Vice President, will discuss our products, markets, and sales activities.

Joe?

Thanks, Ward.

In the fourth quarter, we booked only one new Savant order, and it was from our original resale partner.

Our original resale partner is large and has had turnover in both field security engineers as well as service offerings management, so their project pipeline stalled, as I mentioned last quarter.

We received a $117,000 order to install Savant at an internal customer at this first resale partner, and they are also using this installation to qualify us for some new programs.

This first reseller has other managed security offerings on which we are not included.

On one of their customers last year, when we were up for a major renewal, we won the customer over, but the customer upgraded to another managed security service offering on which we were not included.

So based on that loss, we asked our partner include us on all these other managed security product offerings, and they have responded favorably and are qualifying us.

The engineering team in charge of qualifying new stuff wants to use Savant for these offerings, too, as Savant represents a step-up in capabilities and offers faster response to their operational folks.

The normal question is why were we not included in the first place?

It was because this product definition was done by another team we never knew inside this big company that we call our original resale partner.

Now both teams have been combined into one team and all report to the team leader we have been working with all along.

As our sales have been tied to their wins, they are doing a restart of their security offerings, too.

So when they take off, we expect to be on the whole offering slate that they take to their customers.

Our second resale partner is also looking to see us expand.

Last month, we got a renewal of Savant for our first customer with partner number two.

As you recall, it took off like gangbusters in the second quarter of 2015, taking us to a customer account within a week of signing them up.

As that project finished, our work concluded in early summer 2015.

Since then, the end customer missed the reports and visibility that Savant offered them, and even had Mandiant in as a replacement Savant as part of another initiative.

The end customer just renewed Savant for a year, just a few weeks ago.

We have proposed expanding this small order to additional centers and activities to the new end customer security chief, and that looks favorable.

In the fourth quarter, we booked renewal orders from existing TraceCop customers of $1.7 million.

As I've said for a good while, I expect no negative surprises from our TraceCop business, but we are working some new prospects for TraceCop.

Some of those are early; some of those are closer to orders.

We are working three new prospective customers in six new projects.

I expect a small order from a first-time TraceCop customer in the next few weeks for a demo, and we have identified four projects with that customer on which we can be included.

I expect one or two of these to book initial orders in the next quarter.

We expect two additional $180,000 orders from two other new customers, one this quarter and one next quarter.

As we reported, we thought there was opportunity to expand the TraceCop customer base.

We have additional meetings with other new TraceCop prospects in February and March.

Also, we are awaiting signatures on partner agreements with a fourth resale partner now that was brought to us by a friend we have worked with in the past.

In addition, we have engaged with two additional resellers, each of which serves a captive market, and we expect these agreements in the first half of this year to help expand our sales efforts.

Savant sales continue to be disappointing, so we have continued to focus on stirring up the efforts of our partners as well as our direct sales opportunities.

We have an Americas partners conference with resale partner today, partner number two, today and tomorrow, where our salesman is briefing 130 salesmen and engineers with partner number two.

This is the same partner that we briefed their UK and Asian teams in the fourth quarter.

They have yet to blossom into a reductive reseller for us, but their management is prodding both their field engineers and their sales force to promote Savant to their customers.

So far, we only have one customer with them, the renewal we just got last month.

But they are discussing a few new potential customers with us and have started engaging further.

Last month, we had first meetings with other new potential customers from a variety of our sales partners that I haven't mentioned above; have made sure that each of our salesman have a pipeline of opportunities and I follow up with them every day.

As Ward and I seek to maximize shareholder value, my part is to keep pushing for new customers, both for Savant and TraceCop.

Ward?

Thank you, Joe.

We have a lot of new opportunities in both Savant and TraceCop business areas and we expect growth in both products this year.

Our engineering and analysis teams continue outstanding performance in development of new features in the products.

We thank you for you joining our call today and look forward to communication with you in the future.

Mike?

Okay.

At this time, Nicole, could you remind the participants how to queue up for questions.

(Operator Instructions) Wilson [Snitker].

Hi, guys.

I've decided -- and this is not set up and I apologize if my dog is barking in the background.

My daughter, who really does exist -- it sounds like she's a make-up here -- called me today at about 3 o'clock.

She had just gotten a brokerage statement.

She said, what's going on with my brokerage statement?

The value is going down, which we all on the call can appreciate.

She asked or made the following comments.

And I believe them, because they are very broad.

And she's a teacher, so they lack some sophistication.

And that way you don't feel like I'm taking on you.

I will do the following two quotes.

First quote: why the heck can't they make any money?

And the second quote is: do we have to hold on until the ship sinks?

So I realize you did address that to some extent.

But could you give her a little bit more color -- because I do make her look at the transcript; I'm not sure she really pays attention -- on why the heck can't they make any money since we have now increased our loss for the last six months to a level which is starting to become meaningful?

Well, with respect to the questions, back at the end of 2013, we decided to increase our investment in sales and marketing and engineering expenses, and so began that at that point in time.

In 2013, we had revenues of $7.5 million and a net income of $600,000.

So the steps we took basically were to use up that net income and some additional resources to finance the expansion in sales and marketing and engineering expenses.

With that expansion, we had planned for the revenue expansion to begin instead of not and actually contracting a little bit.

And that occurred both in Savant and in TraceCop.

But now then, we see the increases in TraceCop that we believe will be there this year and the increases in Savant that we believe will be there this year.

So we think everything is on the right track.

Okay.

And just a comment to put it in the transcript.

If people didn't notice, I appreciate the fact that both Mike and Ward -- both of you exercised options which were basically at market; you probably could have bought in the open market for a couple of pennies less.

So it's always good to see you people -- you people meaning the Paxton family -- further committing some funds to Intrusion.

So I like that and I do give you -- since I complain a lot, like to give credit for that, guys.

Thank you.

Thank you.

There are no further questions at this time.

Okay.

Operator, at this time, we'll 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 questions, you can call me at 972-301-3658 or email to mpaxton@intrusion.com.

Thanks again.

This concludes today's conference.

You may now disconnect.