Please standby, we’re about to begin. Welcome to the Intrusion Inc. First Quarter 2022 Earnings Conference Call and Webcast. At this time, all participant lines are in a listen-only mode. For those of each participating in the conference call, there will be an opportunity for your questions at the end of today's prepared comments. Please note, that this conference is being recorded, an audio replay of the conference call will be available on the company's website within a few hours after this call. Now, I’d like to turn the call over to Mr. Sam Cohen with Alpha IR, Investor Relations. Please go ahead, sir.

Thank you and welcome. Joining me today are Tony Scott, Chief Executive Officer; and Franklin Byrd, Chief Financial Officer. The call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I'd like to remind everyone that statements made during this conference call relating to the company's expected future performance, future business prospects, or future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information within risk factors that could cause our actual results to differ materially from the projections described in today's conference call. Any forward-looking statements that we make on this call are based upon information that we believe as today, and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to Generally Accepted Accounting Principles. During the call, we may use non-GAAP measures as we believe it is useful to investors, or we believe it will help investors better understand our performance and business trends. With that, let me turn the call over to Tony for a few opening remarks.

Thank you, Sam. Good afternoon, and thank you all for joining us today. As you'll recall from our previous calls, I outlined several operational and strategic initiatives we have undertaken that are critical to the long-term success of Intrusion. Those initiatives included expanding and strengthening our product offerings, realigning our sales and marketing resources, as well as focusing on the channel-enabled sales model and strengthening our strategic partnerships. And finally, improving our financial discipline, including making sure we have sufficient operating capital to support our research and development, marketing, and operating needs for FY 2022 and beyond. And by executing on these initiatives, we believe that we can, and will, create a bright future for Intrusion, its customers, and its shareholders. I want to take this opportunity to provide an update on each of those initiatives. Starting with our products; we are on-schedule with our plan to unveil new innovative INTRUSION Shield branded products that meet the ever-changing cybersecurity challenges that the world faces. During our last call, we talked a bit about the current market for the INTRUSION Shield appliance. We spent much of the last quarter making product improvements, including performance enhancements, and adding several customer-requested features and capabilities. For Shield Cloud, our product development efforts remain on-track. And I'm pleased to announce that the cloud-based shield product will be available for demo in the next few weeks, and full general availability release of the product remains on-schedule for the second half of 2022. I also briefly mentioned the second new product, INTRUSION Shield Endpoint. Again, our product development efforts are on-track, and like INTRUSION Shield Cloud, we expect to have customer demo capabilities in a few weeks, with GA in the second half of the year as well. This product will support Windows, iOS, and Android clients upon release. I've been personally using early beta versions of this product, and I'm excited about its potential. Finally, I also mentioned the high availability, high throughput version of the Shield appliance. Development on this product is also proceeding on course, especially as it relates to the planned software improvements, but I do have some concerns as it relates to hardware supply chain issues. We are seeing continued chip shortages and longer lead times across the industry, and many are predicting that this will continue for some time to come, and may even become worse in the short run. I expect to know more about the full impact of this, if any, in the next few weeks. The release of these new products in the second half of the year will pave the way for INTRUSION Shield to become our main source of revenue growth in the future. Now, turning to sales and marketing. As we've communicated, we're in the middle of a significant transition period for Intrusion. Towards the end of last year, we took measures to realign our sales and marketing resources. We've hired a new Channel Director, and made needed improvements to our sales force operations. We continue to enhance and improve our channel support, training, and enablement processes. As promised, we're clarifying our value proposition and have energized our channel partners with a renewed focus on making sure we can support their efforts as a force multiplier for our sales efforts; these actions are leading to more meaningful and fruitful customer discussions, POCs, and pipeline development. And we're already starting to see the results of these efforts with several new deals now being closed in Q2, already doubling what we did in Q1, and a significant increase in our qualified pipeline, which is three times greater than our ending Q1 pipeline. On the strategic partnerships front, our discussions have progressed with three major technology partners, but I don't have anything definitive to announce and will not announce anything until these have matured into a formal agreement. I remain optimistic that we will have something to announce on this front in Q3. As we continue to pursue these strategic initiatives, we do so with a commitment to exercising financial discipline. The realignment actions taken to-date, combined with our commitment to financial prudence and good stewardship, are providing more stability and savings. We continue to further strengthen our balance sheet and overall financial flexibility to meet our operational and strategic needs. We closed on the financing announced last quarter for the sale of $10 million in unsecured notes to Streeterville Capital. Our operating needs are being met, and we are confident that the capital markets remain open to us for additional rounds of funding in the near term. These capital raises will allow us to invest in the development of Shield and ensure competitiveness in the global market. We are seeing the results of these efforts in our operations and strategy, as we execute along these promises, and expect the financial results to follow. We move forward with the same commitment to investing in our business in a responsible manner that is commensurate with our prospects for profitable growth. To further aid these efforts, we’ve strengthened our team in the quarter by bringing on Ross Mandel Chief Strategy Officer; and Christopher Duzich, Chief Operating Officer. These are both industry veterans who will help us execute on our repositioning and drive growth. Before wrapping up, let me also address our legacy consulting business. This piece of our business showed some stability last year during the continuing resolution and remains a healthy part of our revenues. As we previously discussed with you, the continuing resolution or CR, has a significant impact on the amount of federal funding that is granted for cybersecurity. And while the CR ended late in the first quarter of this year, creating a tailwind for this business segment, it occurred too late in the quarter to yield any meaningful revenue for the period. Because of this, our revenue in Q1 in this piece of the business was flat compared to the prior quarter. That said, this is a net positive event and with the CR behind us, we can expect to generate revenue growth moving forward. We've seen increased levels of growth in Q1 and expect this part of our business will remain healthy and grow in Q2 and Q3. Finally, while historically we've been focused on the Department of Defense side of this business, we're now making investments and exploring opportunities on the civilian side of the federal government to market INTRUSION Shield, not only to our long-standing customer base but to expand our efforts, to include more traditional, administrative, and civilian government entities. In conclusion, as we continue to set the stage for Intrusion's bright future, the demand for our solutions remains strong, and the core tenants of our strategy remain intact, with long-term growth drivers in the markets we serve. The Russia-Ukraine conflict has demonstrated that cybersecurity attacks are a very real global threat. As Western governments prepare for a potential increase in malicious cyber activity, either from state-sponsored actors in Russia or cyber-crime groups aligned with Russia. This global conflict has increased the focus and the intensity of advanced cybersecurity solutions, and cybersecurity concerns increasingly spillover into daily life, and with the increasing sophistication of security breaches, the need for our network solutions is more critical than ever before. The cybersecurity landscape continues to change rapidly, with zero-day attacks becoming more prevalent. Our products are tested and proven to provide a critical protection layer in organizations' zero trust architecture, combining over 25 years of IP reputational behavior with advanced real-time network monitoring to protect entities from these very real threats. Overall, we feel Intrusion is only getting stronger in our ability to meet this growing demand as we expand our sales channels and partnerships, launch new high-demand products, and improve our overall financial position. With that said, I'd now like to turn the call over to Franklin for a detailed review of our first quarter financials. Franklin?

Thanks, Tony. Revenue for the first quarter of 2022 was $1.8 million, which is in line with the first quarter of 2021. As you would have expected, 2022 first quarter revenue for INTRUSION Shield was significantly higher than the first quarter of 2021. However, Shield revenue increases were offset by lower revenues from our legacy consulting business, largely due to the timing of the continuing resolution which expired March 11 of this year. With the continuing resolution behind us, we are already seeing benefits in both new contracts and increased contracts. First quarter operating expenses were $5.2 million, which are also in line with the first quarter of 2021 results. In the first quarter of 2022, we experienced large decreases in sales and marketing expenses, compared to the prior year quarter that resulted from previously announced headcount reductions and fewer trade shows. However, these decreases were offset by increased R&D and higher than normal G&A expenses from both legal and professional services. Net loss for the first quarter was $4.1 million or minus $0.21 per share, compared to a net loss of $3.99 or minus $0.22 a share for the first quarter of 2021. As of March 31 2022, working capital was $1.39 million, down from $2.1 million in the prior quarter. Turning to the balance sheet. As of March 31, 2022, we had cash and cash equivalents of $6.1 million, up from $4.1 million in the prior quarter. This includes approximately $4.7 million in net proceeds received from the first note with Streeterville Capital, which was put in place in March. We are expecting to close a second round of financing with Streeterville Capital to provide additional net proceeds of approximately $4.7 million to the company. As we've mentioned previously, the closing of the second note is contingent on certain conditions being met, one of which is being voted on at our annual shareholders meeting later this month. Additionally, our ATM or aftermarket sales program remains in place and we will utilize it in the future to finance operational activities, invest in Shield, as well as for potential note repayments, which may depend on current market prices. Lastly, we are continuing to work on additional financing transactions to meet our previously announced capital raise goal of $15 million to $20 million this year. As this transaction develops, and we have meaningful information, we'll be sure to report it. With that financial overview, I'd like to turn the call back over to Tony for a few closing comments. Tony?

Thanks, Franklin. In conclusion, we're moving forward with a clearer vision for our future. And we're focused on transforming that vision into action through compelling products and innovative strategies that position us to capitalize on the robust opportunities in our evolving cybersecurity marketplace. We look forward to sharing that journey with all of you, and we thank our investors for your continued support and your patience as we execute our strategy. And as a reminder, we'll be holding our Annual General Meeting on Tuesday, May 24 at 9:00 o'clock A.M. Central Time in Plano, Texas. We encourage all shareholders to participate and vote on their proxy. As a reminder, our proxy was filed with the SEC on April 18, and can be found on our Investor Relations website. That concludes our prepared remarks. And now, I'll turn the call over to the operator for Q&A.

Thank you very much, Mr. Scott. We'll take our first question from Zach Cummins at B. Riley Securities.

Yes, thanks. Good afternoon. Hi, Tony. Hi, Franklin. Thanks for taking my questions. Tony, just first off, can you talk about some of the incremental progress you've seen on the sales and marketing side here in Q2? And what are some of the key drivers to get not only the better conversion, but also more shots on goal with a larger pipeline?

Sure. Well, I think I mentioned, when I compared to where we ended Q1. In Q2, we currently in the quarter isn't over yet, obviously, we're seeing 3x the pipeline that we had at the end of Q1, which to me, and this is qualified pipeline. So, these are sort of important metrics to know where you're headed. And then we've also, as I mentioned, signed double in terms of revenue, the deals that we did in Q1, and already, we're not even halfway through the second quarter. So to me, both of those are positive indicators of where we're headed. And when we actually release the new products, you'll see increased levels of marketing and demand generation, and all of that. So I'm pretty excited about where this is all headed. And the response from our current customers has been really good to the improvements that we made in the existing products. I'll also tell you just one anecdote, we had a managed service provider, start with us this quarter, and that customer deployed to one of their customers. And in the first week, we stopped a major attack that got past their existing firewall and Shields stopped it. And we got a very enthusiastic call from both the customer and from the managed service provider, telling us how much they liked and appreciated Shield. And that felt really good that we could have that kind of impact that quickly on a brand-new customer. And it's pretty typical of what we're experiencing now as we get more product out into the marketplace. So I'm pleased with the direction obviously, the volume needs to ramp up pretty significantly, which we think it will with the new products in particular honors.

Understood that's great to hear. And since you've mentioned the new products, have you had other customers test both the cloud and the endpoint product in its beta form right now? Or is that going to be put on hold until the demo here in the coming weeks? And then second question around that is once both of these are generally available, what sort of additional training or sound like incremental marketing programs are you planning to really drive faster adoption for these new products?

We haven't tested with customers at any scale, we have a couple of insightful customers that know where we're going with this and who understand what we're doing from a technology standpoint. They're pretty excited about getting their hands on it. But we've not done any general deployment yet. That will happen in Q2 here, as we have demo capability, and the products just a little bit more baked than they are currently at the moment. So I mentioned on the call, I've been using the endpoint internally here. And I have shown that to a couple of customers, and their enthusiasm was pretty high on that one. In particular, as we've demoed that, so I have high hopes for both of these as we get them into the marketplace. And so I'm sorry, what was your second question?

Yes. Second question is really around. Once we move closer to general availability, I mean, what sort of additional training is going to be required for your channel partners, and also, it seems like you're going to put some incremental dollars that works to marketing programs for this.

Sure. So during Q1, we spent a lot of effort to get the channel ready for the existing product and understanding what our technology is and how it works. So there will be some incremental training required for both of the new products, but it's not a 100% duplicative effort. It'll be incremental to what they already do and know. And in particular, one of the things that we're focused on is making both of these new products much easier to demo, much easier to try and do a POC. And then ultimately, much easier to buy once the customer makes a buying decision. Today, as we've talked before, you know, deploying a hardware appliance behind the firewall requires usually some heavy lifting, that we hope to avoid, at least for demo and POC purposes going forward. So we think that this should speed up the sales cycle and lighten the load in terms of POCs going forward.

Understand, well, thanks for taking my questions. And best of luck with the rest of you, too.

Thanks.

It seems we have no more questions this afternoon. Mr. Scott, I'll hand it back to you for any final remarks.

Well, thank you. Hey, I really appreciate the questions today and the interest in Intrusion. I know this has been a long journey for some of our shareholders. And we all certainly would hope that the share price was significantly higher than it is today. I know that frustrates everyone and especially our long-term shareholders. That said, I think we are poised to renew interest in Intrusion. And I think we're on the doorstep of a bright new era for Intrusion going forward. I look forward to sharing our second quarter results with you. And I do appreciate your patience and your perseverance with us so far. And I hope that that can be rewarded in the future. I'm very excited about where we're going. And I appreciate everybody, everybody's interest and sharing your questions with us today. Thanks.

Thanks, Mr. Scott. Ladies and gentlemen, that would conclude Intrusion’s Incorporated First Quarter 2022 Earnings Conference Call. With that, thank you all so much for joining us and wish you all a great afternoon. Goodbye.