Good day, ladies and gentlemen and welcome to Intrusion, Inc. First Quarter 2018 Financial Conference Call. [Operator Instructions]. Thank you. I’d now like to turn the conference over to Mr. Mike Paxton. Sir?

Thank you. Welcome to this afternoon's call to review Intrusion's first quarter 218 financial results. Participating on the call today are Ward Paxton, Chairman and Co-Founder, President, and CEO; and Joe Head, Senior Vice President and Co-Founder of the Company. Ward will give a business update. I will discuss financial results and Joe will go over the ongoing projects. We will be glad to answer questions following our prepared remarks. We distributed the release at approximately 3:05 PM Central Time today. A replay of today's call will be available at approximately 6:30 tonight for one-week period. A replay conference call number is 855-859-2056. At the replay prompt, enter conference ID 8979247. 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 2017. 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) filed in March of 2018 and previous Form 10-Qs. Now, I'll turn the call over to CEO and President, Ward Paxton.

Thank you, Mike. Welcome to Intrusion's first quarter 2018 conference call. It's good to be with you today to announce that the first quarter of 2018 financial results were outstanding primarily driven by our revenue growth. Net income in the first quarter reached $346,000, a 78% increase over the fourth quarter of 2017. Our orders pipeline as we entered 2018 included 26 customers, 15 of which were existing customers and 11 were new customers. Last year our total revenue was $6.9 million with the Top 4 customers generating 4.4 million of that. Those Top 4 customers generated $1.2 million, $1.2 million, $1.1, and $0.9 million respectively. In the fourth quarter last year a new customer emerged that was the largest customer in the quarter. Gross profit margin was 62% of revenue for the first quarter 2018. Gross profit margin should range from 58% to 65% depending on product mix. Now Mike Paxton, our Chief Financial Officer will review our first quarter financial results that we released a little over an hour ago.

Okay. Hopefully I don’t repeat too much here. First quarter of 2018 financials from the press release, revenues for the first quarter was $2.26 million compared to $1.56 million for the first quarter of 2017. Q4 2017 sales were $2.1 million so that was growth from quarter to quarter. Gross profit margin was at 62% in the first quarter compared to 63% in the first quarter last year. As Ward said gross profit margin can be greatly affected by sales product mix of deliverables in the quarter in general our goal was 65%. Intrusion's first quarter 2018 operating expenses were 1 million compared to 1.3 million for the comparable quarter in 2017. Operating expenses improved mainly because of R&D expenses that were shifted to cost of sales so R&D labor cost went to direct labor. Net income for the quarter was 346,000 compared to a net loss of 351,000 for the first quarter of 2017, that's a nice $600,000 delta there, $190,000 net income was in Q4 as Ward mentioned and so we grew that to $346,000 in first quarter. Thank you. Now back to Ward.

Thank you, Mike. It's good to have those good numbers to report in it. Now Joe Head, my partner, Co-Founder of Intrusion and Senior Vice President will discuss our outstanding sales results and momentum. Joe?

Thanks, Ward. As I already said we finished 2018 well booking 4.4 million in Q4 of which $2.5 million was from new customers. My goal was to book enough orders for new customers to move the company to profitability and we did. With this release we have another profitable quarter with the first quarter 2018 almost double the profitability of Q4 2017. With these new orders these new orders have added to our base business our 2.1 of revenues for the fourth quarter increased to 2.3 million in the first quarter of 2018. We're pleased that our sales efforts have restored the company to profitability but there are still reasons to look up going forward. We've been watching two large orders work their way through procurement for months and have indications that these will soon turn to purchase orders. The most important one I'm tracking is over twice the size of our previous largest order and represents a new class of opportunities for us. There are a few new opportunities which has surfaced this quarter, this last quarter with potential new customers solely based on relationships that have grown out of our two newest contracts. We still have some business development work to do for turning these opportunities into orders in late 2018 and early 2019. We have still about the same mix of small, medium and large opportunities that we've discussed with you in the past and we have so much larger ones as well, so I'm optimistic about building on our momentum for the last two quarters to take us up another notch by Q3. As we continue to grow our reputation for making wins for our customers this continue to serve us well. We have to grow engineering and sales staff as we continue to expand this year which is a good direction to be moving. I look forward to communicating some good orders to drive more good quarters soon. Ward?

Thank you, Joe. The first quarter 2018 was a smooth continuation of the fourth quarter of 2017. With the majority of business coming from the TraceCop family of products and services , we expect revenue growth to continue in the future and expect to begin selling a few Savant products along with the TraceCop products to some of Tray Scott customers later this year. Our team continues to produce at a very high level and this dedication will result in outstanding performance and growth. I look forward to the future communication with you guys out there as we review our progress. Thank you. Mike.

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

[Operator Instructions]. Our first question comes from Howard Brous. Your line is now open.

Wunderlich Securities. Congratulations on a very good quarter. I take it that your bookings then are lumpy, is that a fair comment?

Yes, very definitely lumpy.

What were your bookings in Q1?

At Q1 they were about 850,000 and there was about five or so reorders with existing customers.

So the 850 is inclusive of all five, is that a correct statement?

Yes.

Okay. You had mentioned in the last quarter you were considering hiring investor relations firm. What progress have you made there?

Yes. Well we haven't begun an intense search there yet waiting till we got a little further along with respect to the orders and the backlog and the business but we're getting there now so that if the trend continues we will find somebody to do that job for us soon.

All right. Can you define soon you're talking about the next quarter, second or third quarter?

I'm kind of taking that in relation to a couple of the real big orders that Joe mentioned that he's working on and I want to kind of simultaneously with booking one of those recruit my help on financial public relations and begin the effort.

Joe, in terms of booking one or two of those large orders what's your best guess and I'm using the word guess as to timing on that.

I've been thinking it is about two weeks away since January of 14th, but as I understand the funds have been transferred to a procurement group and all the paperwork will be done at the end of this week so they can start the procurement with us so historically that's about a three week cycle from the end of this week so that's my best guess at this point but it's been months of waiting.

No, I certainly appreciate that. Would you - assuming that you do get the order would you announce it separately or wait for the quarter?

One of the larger orders we will make an announcement related to that interim announcement. We won't wait for the quarter.

Let me address Savant if I may, this is two quarters in a row you've discussed the opportunity that still exists in Savant, did you try to quantify when the timing of when you think you might get some orders and the magnitude?

Well, number one is was about a year ago now we decided to put all of our focus on the TraceCop business and I've done that. As we're getting to the spot now where our momentum with TraceCop is continuing to increase and we will continue to focus our resources on that but we do have an opportunity now to sell Savant to some existing TraceCop customers and so as we sell Savant to existing TraceCop customers that will be at a low requirement on our personnel and that they will be really just having another product to lump on to sale.

Well are selling into some commercial accounts.

Yes, we have some other things going on there but we are still haven't devoted a whole lot of resource there but we will continue.

We’re starting scoping it at three customers that was a good answer so one commercial and two TraceCop customers that are -- looks like they have already lined up the funds, its not a huge amount but that will be a couple 100,000 bucks but it’s a -- we think once we get some experience that visibility is what's missing in a lot of our customer engagements they send us their logs and their logs are wimpy in terms of completeness and I think there is some opportunity for growth there.

Our next question comes from Walter Schenker. Your line is now open.

You talked about 26 opportunities, I'm not in front of a desk, behind a wheel [indiscernible] and 11 would be new and are 15 renewals, in regard to new you talked about two potentially large customers but it seems as if you have not signed -- would it be correct to say that you have not signed a new customer this year?

No that's not right. We have signed a couple of new customers to our kind of normal starting levels of $200,000 - $300,000 this year.

Okay. So what you did in the first quarter was five renewals and a couple of start-ups on new customers?

That's right.

Okay, I didn’t know if five was all inclusive or just you breaking that part out. Joe, in regard to something that's even larger than your last large contract and you've been waiting for it for a long time. Could you just sort of put a little more color and I know it’s never over until it's over into that procurement process at this point you know something can always go wrong but really as you look at it what goes wrong from here?

Yes I think we're in good shape I think the money is safe and has been allocated for us since early January and they have been shopping around for what is a good vehicle to run it through it did last for a couple of years, so they're looking at it as a kind of a two to three year procurement. I want to get a place to put it that can handle that amount of money for multiple years and I think they're gotten that fixed up. So I think we're in good shape, Walter. I'm expecting to have contract action begin here next week.

Well hopefully you will have it at the annual meeting to cheer up annual meeting large turnout.

A week from Thursday I think it will come that quickly but we will be in the middle of doing it by then I believe Walter but I've had this feeling for a while, but it's getting close so I think we're getting on the last stage of completing that one.

And [indiscernible] the end customer is some sort of government entity?

Yes, just normal DoD stuff.

Okay. And you've mentioned a second large customer although it's mostly concentrated on this one, but also a contract comparable to a bigger than the one you announced in the fourth quarter.

No, it's about the same size it is.

It's a nice big contract.

And that one is also made it through the early phases of procurement?

I believe so.

Okay. And the smaller stuff -- you would hope also to have at least some news as we go forward?

Yes so the way I would characterize it there is -- I have a good number of projects that will be the medium to large about the same as you've heard for a while and I know you all got tired of hearing my pipeline so I've decided not to dwell so much on it but there are just three or four new ones that are each going to be in the 0.5 million to a 1 million a year that we started working end of last year that are looking for next fiscal year money and as we speak basically going from prototype to production kind of stuff. So I think my focus is on a monster ones that are near horizon while not ignoring the longer term ones and there's some good stuff in there that's a little higher than our historical capture rate of new customers. So I'm pretty happy with the way things are proceeding.

And lastly you had mentioned in the last call with the big new contract and the fact that this was a very nice profitable quarter although the new orders were fairly modest you have enough backlog that you would expect to remain profitable on a quarterly basis, I asked that last quarter so I'm going to ask it again.

Now our backlog Walter is to the modest at best however right now for the existing quarter we have more of that it's coming from the backlog than normal which is a step in the right direction but still the business that get scheduled is not very far in front of us and so if we look at our estimates they're going forward the amount of business that comes from the backlog drops off regularly month by month as we go forward from where we are and it takes additional new orders to get there.

And renewals?

Well renewals, when I say new orders I mean renewals and the fact is short term-wise in the next three months nearly everything is renewals or backlog that we are expecting.

Yes, a lot of the stuff we view is sort of an annual thing but they will drop in quarterly funding or six months so what we are expecting is always got to get a new purchase order to continue at the same level.

Yes.

So what I'm supposed to take away from that is until we get these other large orders the quarter we just reported which was an excellent quarter may well be an interim hot watermark?

That’s a possibility but the probability of that is less than it was back a quarter when we are looking forward, in another words the amount of backlog we have right now relative to maintaining the level we are right now is better.

I would be more optimistic than you, Walter.

But then both of you are always more optimistic than me. Okay, I will see you at the annual meeting. Thank you.

All right. Another quarter to see you Walter.

[Operator Instructions]. We do have a follow-up from Howard Brous. Your line is now open.

In light of what Walter was asking making an assumption that one of these two large orders comes in this quarter, when would you start working on actually getting revenues from either one of these two orders?

Immediately, it won't step up to the maximum level immediately but we would start generating revenue basically immediately where it turned into the business and the requirements for both of these orders and can translate that to revenue quickly.

And the margins, gross margins certainly would increase overall. Now the gross margins wouldn’t necessarily increase overall but they would continue to be at a very good level like the 65%, 60% to 65% level that we are looking at. Depending on the nature of the business there and the product mix, I will say product mix we have some customers where we deliver them some hardware to their requirements that we don't get any profit margin on and that's not very much, it's always had some when we saw our profit margin drop down a little bit last year it was related to that hardware component being higher than normal, okay, and right now in the first quarter it was close to normal but there was still some. As we go forward we don't anticipate that to being insignificant.

Thank you. I'm showing no further questions in queue so I'd like to turn it back over for closing remarks.

All right we'll wrap up the call. Thank you for participating in the call today. If you did not receive a copy of the press release or if you have further questions I can be reached at 972-301-3658, email m.paxton@intrustion.com. Thanks again.

Thank you. Ladies and gentlemen that does today's call. Thank you very much for your participation. You may all disconnect. Have a wonderful day.