Welcome to Intrusion Inc.'s Fourth Quarter and Full Year 2023 Earnings Conference Call and Webcast. [Operator Instructions] Please note, 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. I will now turn the call over to Josh Carroll with Investor Relations.

Thank you, and welcome. Joining me today are Tony Scott, Chief Executive Officer; and Kimberly Pinson, Chief Financial Officer. This 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 the statements made during this conference call relate to the company's expected future performance, future business prospects, 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 on the specific 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 of 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 if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends. With that, let me now turn the call over to Tony for a few opening remarks.

Thank you, Josh, and good afternoon, and thank you all for joining us today. To start, I'd like to just take a moment to acknowledge the poor performance of our stock in the marketplace this past year. As an investor and one who has significantly increased my personal investment in Intrusion over the last year, I want you to know that I feel your pain. Intrusion's performance in 2023 did not live up to anyone's expectations, including mine, and I wanted to address that right upfront. But I'd like to share some of the factors which have contributed to that poor performance, and also share our plans to overcome those realities or at least compensate for them. We made no secret that we needed to raise capital in 2023. And as it turned out, 2023 was one of the worst years ever for small and micro-cap companies to raise equity. We made multiple attempts with 3 different investment banking firms to raise capital. And obviously, our stock was severely discounted as a result of these efforts. Additionally, due to unforeseen delays in Shield bookings, we were not able to make the kind of public announcements that could have helped either stabilize the stock price or generate a measure of positive inertia. And finally, as you'll hear later, the loss of the large thin margin consultant contract in 2022, that we previously talked about, had its full impact on top line revenue in 2023 and the impact of the federal government's continuing resolution in Q4 2023, which continued into 2024 has had a significant impact on our consulting revenue during the period. At all times, we've reacted to these developments by doing what we could to reduce costs and to conserve cash, and the same time preserve and protect our highly…

Thanks, Tony. Revenues for the fourth quarter of 2023 were $1.4 million, a decrease of $0.1 million on both a sequential and year-over-year basis. Revenues for the full year ended December 31, 2023, were $5.6 million, a decrease of $1.9 million compared to 2022. Consulting revenue in the fourth quarter totaled $0.9 million, a decrease of $0.1 million sequentially and $0.2 million year-over-year. Consulting revenue for the full year of 2023 was $4.0 million, a decrease of $2.3 million compared to 2022. The decline in our consulting revenues is due to the loss of a consulting contract in the fourth quarter of 2022, in which Intrusion's prime sponsor chose not to renew the final option nor the contract. As disclosed in prior quarters, while the loss of this one consulting contract significantly impacted Intrusion's top line revenue, the gross margin on this contract was 14%, and as a result, had a marginal impact on profitability. Additionally, as Tony mentioned earlier in the call, our consulting business has also been impacted by the continuing resolution of the federal budget that continues to hinder the clarity of timing for new contract awards. We continue to have a relatively strong consulting pipeline that once the budget uncertainty is officially risked should result in growth. Shield revenue for the fourth quarter was $0.4 million, which was relatively flat sequentially and up 37% on a year-over-year basis. For the full year of 2023, Shield revenue was $1.6 million, an increase of 36% compared to 2022. However, as Tony previously mentioned, we were informed by a large Shield customer that they will not be renewing their contract. As a result, loss of the Shield customer has the potential to impact our financial results beginning in the second quarter and to a greater extent, the deals that…

Thanks, Kim. Despite the challenges that we faced throughout the year, we've continued to move forward with a clear vision for the future, and we're focused on transforming that vision into action through compelling products, the innovative strategies that positioned us, capitalized on the robust opportunities in our evolving marketplace. I look forward to sharing the next steps in our journey with all of you, and I want to personally thank all of our employees for all their hard work over the past year and our investors and financial partners for their continued patience and support as we execute our strategy. This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A.

[Operator Instructions] The first question comes from Scott Buck with H.C. Wainright.

Tony, I'm curious, are you seeing any patterns in the success that you're having selling Shield during the fourth quarter and now the first quarter? I'm just curious if maybe you guys have stumbled on to a secret sauce or what the recent success can be attributed to?

I think there's a couple of things. But first, I would tell you that all of the new work that we talked about, the new logos were the result of months of work of doing a proof of concept and then getting the customer comfortable with the product and what it could do and so on. So in a lot of ways, we've been setting the stage for these for quite a long time. But I think there's a couple of macro things in the environment that also are helping us. One is, and you've probably seen in the newspaper a lot of concern around activities from foreign governments, China and Russia, in particular. And our solution is particularly well suited to detect those kinds of threats in a network environment. And I think as people's concerns have continued to rise in that particular dimension, it argues for a solution like ours may be more than it would have before. So we do see that pattern. And then I mentioned it in my remarks, but one of the things we were missing was the ability to manage a fleet of Shield instances. Prior to our introduction of the cloud dashboard, you would have had to log into each instance separately and manage it individually. And with the cloud platform now, you can manage a fleet of Shield devices across all the different ways it gets deployed and have consolidated reporting as well as management. And that was one of the most asked for features from our bigger clients. And so, I think, that's helped and will continue to help us in terms of addressing the needs of some of these larger customers.

Great. I appreciate that. Kim, can you tell us what the dollar amount contributed from the large nonrecurring Shield customer was during 2023?

I don't have that number in front of me. I know -- I mean, it is a significant number, and I would need to pull that for you. But it does represent -- in 2023, it represented I think, roughly 80% of the Shield revenues.

Okay. I appreciate that. And then last one for me, guys. What do you have remaining on the ATM?

We have roughly $9 million remaining on the ATM. The ATM is off of our S-3 registration, which expires in August of this next year.

Next question comes from Ed Woo with Ascendiant Capital.

You mentioned that some of the cybersecurity budgets are getting cut. How does your self pipeline look right now versus 3 months ago and a year ago?

Yes. I didn't want to misrepresent. They're not so much getting cut, but they're tapering down in terms of the amount of increases that they've been getting. As you can probably imagine, over the last couple of years, one of the big increases in IT budgets was for cybersecurity, could have been 20%, 30%, 40% a year in some cases. And that's been driven down pretty significantly in most organizations. So what we're seeing is more like a single-digit increases, not double-digit increases and so on. And so that's, I think, the factor that I was referring to there. And what the CIOs and CISOs are starting to demand is a couple of things that I think are relevant to our platform. One is prove to me that there's value in the technology that it's actually preventing something. And we can actually show that what the value for the money is. It's not true necessarily of all the cyber tools that an organization may have in its stack. So I think CIOs are looking at what's nice to have and what's critical to have. And, I think, in some cases, they're narrowing their choices based on that. And then they also complain about the number of suppliers they have to deal with. That's a trend that's been going on for now a couple of quarters. And so I expect there to be some industry consolidation as a result of that concern. And it's becoming a pretty vocal concern at this particular point.

The next question comes from Walter Schenker with MAZ Partners.

The ability to raise capital from the ATM is somewhat limited given the liquidity in the stock, especially although I realize it's just math, but they're only about 1.5 million shares left or maybe a little more after the Streeterville. What thoughts do you have, Tony, about raising capital beyond that, the ATM?

Well, I think, as Kim mentioned, we're looking at pipe type transactions similar to what we did in Q4. And I want to note that I'm personally going participate in that, again, and continue my investment in Intrusion. And it's likely a small number of investors, think of it as friends and family, a mix of tech people -- cyber people, retired business people, wealthy individuals and myself who believe in what we're doing and think there's a great future ahead of us. So that's our plan at the moment.

And just a second quick question, you don't know, but you've been in negotiations on the consulting side, and we've discussed this, given your relationships going back a long way, the budget has now been passed. I realize it takes a little while to work things out. But you would look to the consulting area to be meaningfully higher than it's been running recently i.e., you're picking up new contracts, not just renewals plus price...

Yes. We had -- so there's a couple of things to think about in this space. One was if you remember our business, we have a series of contracts that just renew generally a year after year after year as the budget gets passed and then we get task orders against those renewals. Because of the length of this CR, some of those renewals didn't happen when the new budget didn't get passed. And Congress can't -- or agencies can't spend money if it's not appropriated and authorized by the Congress. . And so we were impacted by those. And then on top of it, we had some new opportunities, some of which we thought could be funded by sort of, I'll call it, emergency funding or funding that generally isn't subject to the annual process. But it turned out in the end that, that was not possible. So we've got a pipeline of prospective deals that when the dust settles, we think we've got a good opportunity for the remaining 6 months of the year. And it will -- as I said, it will take a little while for that to sort through. But we feel like we're in pretty good shape there. So I'm optimistic.

At this time, there are no other questions in queue. I'll turn the call back over to your host, Mr. Tony Scott.

Well, thanks. I appreciate the questions. As we find ourselves at the end of -- almost at the end of Q1, I think there's a couple of things to be excited about. As I mentioned on the call, some of the wins that we had in Q4, I think, are likely to turn into significantly bigger opportunities in the remaining part of the year, and we look forward to that. We're also excited about this one opportunity I mentioned with our I1 Resources partner for the Bureau of Elections in the Philippines. And I think that's a real positive if we can win that solution. Part of that solution is a new variation of the product that we created to provide additional layer of security when you have a StarLink terminal, and that was one of the winning elements that helped this solution get down selected for the Bureau of Elections. And we're seeing a great level of interest in other applications. As I think many of you know, StarLink terminals are popping up everywhere. But a lot of customers are looking for additional cybersecurity. So we're hoping to take advantage of that growth and make sure that Intrusion is a part of that solution whenever anybody buys a StarLink terminal for their business. So taken together, I'm still optimistic about our future. As I mentioned, I'm going to invest additionally over the course of the year, and I hope to have some very positive news over the next several months for you. I appreciate everybody's patience. This has obviously taken a lot longer and been a lot harder than any of us imagined a year ago or 2 years ago. But we're committed, we're working hard. The team is ready and anxious and we're looking forward to showing what we can do. So I want to thank everybody, and I appreciate your participation.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.