Welcome to Intrusion Inc.'s First Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions] Please note this conference is being recorded. An audio replay of this conference call will be available on the company's website within a few hours after this call. I would now like to 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 statements made during this conference call related 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. As I think many of you know, the first quarter and the first few weeks of the second quarter have been filled with multiple milestones as we work through the many challenges presented to us. I'll cover many of the specifics in greater detail shortly, but I'd like to first begin by discussing our current stock price and market cap, which I believe are grossly undervalued and are not reflective of the true comparative value of our company and our technology. This issue remains top of mind for me, and I'm sure for all of you. Multiple members of our executive team, including myself and many of our existing long-term shareholders have continued to increase their investments in Intrusion stock for which I am grateful. You've heard from me on multiple occasions about my optimism for the future of Intrusion based on our unique core technology and based on our continued investment in and development of our unparalleled technology to ensure that we can address the most challenging cybersecurity issues of our time. And we've recently announced some important customer wins, which validate that optimism. And I want you to know that my optimism for our future is only increasing. Turning now to our sales activity. During the last call, we discussed the addition of 7 new logos, and we continue to build off this strong bookings momentum with the addition of 5 new logos. These new customers operate in a variety of different sectors, including natural gas exploration and development, water utilities and the government sector. The deployment of our technology and the revenue associated with these deployments will ramp up over the next few quarters. This is a pattern we expect to see more…

Thanks, Tony. Revenues for the first quarter of 2024 were $1.1 million, a decrease of $0.2 million on both a sequential and year-over-year basis. Consulting revenue in the first quarter totaled $0.7 million, a decrease of $0.2 million sequentially and $0.3 million year-over-year. Shield revenue for the first quarter was $0.4 million, which was flat sequentially and up $0.1 million on a year-over-year basis. On our last earnings call, we announced that a large Shield customer had decided not to renew their contract that would impact revenues beginning in Q2. As a result of the recent government order, we expect Shield revenues to remain flat or increase in Q2. We anticipate that the recent closed deals and new awards inclusive of the iOne Resources award to supply the Secure Electronic Transmission Services for the 2025 midterm elections in the Philippines will help drive Shield revenue growth in 2024. Gross profit was 80% for the first quarter of 2024 compared to 76% in the first quarter of 2023. The increase in gross profit margin in the current quarter is a result of product mix, with Shield revenues representing a higher percentage of revenues. Shield revenues now represent 39% of revenues in Q1. Operating expenses in the first quarter of 2024 totaled $3.4 million, a decrease of $0.1 million sequentially from the fourth quarter of 2023. As a result of the cost reduction measures that we implemented in March of last year and the savings initiatives that we continued to implement throughout 2023, we have now seen over $7 million in cost savings over the past 12 months. As we have noted on previous calls, as we grow our customer base and increase revenues, we may choose to accelerate our product development in future periods or marketing spend to increase brand awareness,…

Thanks, Kim. We've made tremendous progress over the past few months, overcoming many of the challenges that we've faced during the past year, which have now positioned us to focus solely on our vision of driving growth through our compelling products and innovative strategies that provide our customers with the tools they need to better identify, deflect and eliminate any cyber threats they may encounter. I look forward to sharing the next steps in our journey with all of you, and I want to personally thank all of our investors and financial partners for their continued patience and support as we execute our strategy. Now this concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A.

[Operator Instructions] Your first question for today is from Scott Buck with H.C. Wainwright.

Tony, I was hoping you could help clear something up for me. The iOne Resources agreement in the Philippines gets described as being potentially $1 million of ARR beginning in the second half of this year. But it's for a singular election, right? So what carries into 2025 that makes it annual recurring revenue?

Yes. So the structure of the program and the bid that we were a part of has us stand up the equipment and have it all fully tested and ready to go by October. The elections don't actually occur until the spring of the following year. And then following that, everything stands down, but a bunch of reconfiguration and testing and additional capabilities will get deployed because, as you know, threats continue to evolve over time. So during that downtime, we'll be preparing and getting ready for the next set of elections and then we'll stand up the gear again. So from an operations perspective, it has an ebb and flow, but the work that we'll be doing with them will continue in different waves over the period of time. So that's kind of the reason it looks to us like ARR, it will be -- our revenue will be smooth over the life of the contract.

No, that makes sense, and that's great to hear. Second, I wanted to ask about the new logos this quarter and really the new logos last quarter. Is there a particular size that you're seeing the most traction in? And could you give us any kind of indication of what the average, either -- both duration, I guess, of the contracts are and what the size is in terms of potential revenue?

There's no average at this point that makes any sense. So -- and there's a couple of reasons for it, Scott. Probably the biggest reason is that by their very structure, many of these start small and might be $100,000 or $200,000 or whatever, but then expand over some period of time. And so it's hard to create an average on deals like that. And I mentioned in the call, this is a pattern we're starting to see with some of the larger customers. So you'll see us announce these deals from time to time. That might be pretty small initially, but then 6 months later are double, triple, quadruple the initial contract. And then the second thing I'd say is we continue to win some deals that are relatively small in nature, meaning under $100,000, let's just say, for example, but are in industries that we want to be present in and serve as sort of pivot points for us to demonstrate our value in those industries. So we're not turning any customers away at this particular point. But just as an example, one of the managed service providers that we signed last year now has expanded our presence into 2 more customers. And that's not trivial for us. It's a proof point that, that customer, meaning the managed service provider, and their customers are excited about our technology.

Got it. That's helpful. And then last one for me, Tony. Just the mechanics of new customer onboarding. You guys are reliant on them in terms of timing? Or are they reliant on you in terms of timing?

Every deal is kind of different at this point. The Commission on Elections one has a fixed deadline. We've got to be up and running. And we're working with those teams on the actual stand-up plan. Some of the others that we have don't have a fixed date and time like the Commission on Elections one. But in, I think, all of those other cases that I can think of, it's a discussion that we have with the customer about what makes sense. And I think as we've mentioned before, in some cases, we have to do site surveys with the customer, which involves potentially a few weeks of work before we actually install. And the other thing that we're seeing in some cases is depending on the age and the nature of the network equipment that a customer might have in their environment, we may need to do some additional work with those customers to either reconfigure their network slightly or in some cases, install our equipment in a different way than we initially anticipated. So we've seen all those cases, and we're fully prepared to deal with those as new customers come along.

Your next question is from Ed Woo with Ascendiant Capital.

Yes. Congratulations on the [ Philippines ] iOne Resources deal. My question is, should we expect more opportunities in Asia or just international in general, with the Philippines deal?

I think you can anticipate more in Asia Pac. As I think everybody realizes we've sort of underperformed in the U.S. over the last year or so, but we now see some signs where we think we're going to correct that with some of the more recent wins and so on. So proportionately, I think we expect to have a little more balanced set of wins over time. But in the short run, Asia Pac is a great opportunity for us and one that we expect will be really good for the company. One of the interesting things there is it's a little easier for us to get attention in that region because the cybersecurity isn't being so over marketed in that region as it is here. So it's a little easier for us to get attention and word of mouth goes really well there. In the U.S., there's just a cacophony of cybersecurity companies. I was at RSA this last week, and the noise level was just deafening. It was like the cicadas coming out of the ground that you're probably reading about in the newspaper. It's a deafening bunch of noise coming from our industry. So we'll take advantage of it wherever we can.

Great. Well, congratulations again, and I wish you guys good luck.

Your next question for today is from Paul Rodriguez with WestPark Capital.

Yes. I had a question. I wanted to ask you about your comments on federal. I wanted to see what you've seen in terms of visibility improvements for the June quarter in federal. If you have any thoughts about that? And then I have a follow-up.

Yes. So we have, as I think Kim mentioned, already booked some contracts in federal that we expect will make up for the gap that we had from the lost contract from last year. And then we're in process on some additional work that we haven't secured yet. But I would say, overall, the opportunity looks pretty good for us for the rest of the year. We're not giving up. And I would expect and hope that we get some additional on top of what we've already landed. The -- in an election year, as you can imagine, everybody is quite sensitive to problems that can be created by both criminals and political adversaries and all those kinds of things, nation states and our solutions are well suited to help address some of those kinds of challenges. So we expect to do really well for the rest of the year. And we hope there's not another long continuing resolution at the beginning of the fiscal year, this next year.

Okay. Helpful. One last question on the Klever AI announcement. Have you guys discussed any sort of roadmap on the endpoint and cloud products yet?

Yes, we have a multiyear roadmap actually for those. And I expect that Klever will play a pretty important role in our continuing advancement of those products.

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

Well, thank you, everyone. Again, as I said earlier, I really appreciate the patience. But I do want you to know that my enthusiasm for our future is, as I said earlier, greater than ever. We've put a lot of hard work in over the last couple of years. I and the rest of the management team have had our fair share of issues to deal with in addition to just running the company. And we have a lot of that, I'll call it, nonproductive work behind us now, and we're fully focused now on just growing our business, increasing sales, and we don't have the distraction of lawsuits and investigations and all of those other things to deal with, and nor do I want any of those things back ever again. So we're fully focused. We know what we've got to do. We've got a clear vision of our future, and we see some great signs that customers are ready to adopt our solution. So one of the things I've said to a number of people is that in addition to sales with some of these big contracts like the Commission on Elections and some of these other ones, some of our challenges are going to be now on the execution side, supply chain issues, making sure we can fully avail ourselves of these deals that we've won. I'm a pilot, I think as many of you know, and one of the truisms that I learned a long time ago is almost anybody can learn very quickly to take a plane off, but landing the plane is the hard part. And I've used this analogy before, but we've got a lot of plane landings to do in the next 6 months. And I really look forward to it. It's a good problem to have, and I think our team is ready to take on the challenge. So I just want to say thanks to everyone. Look forward to next quarter's call with lots of enthusiasm. Thanks so much.

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