VerifyMe, Inc. (VRME) Q1 2023 Earnings Report, Transcript and Summary

Good day everyone and welcome to the VerifyMe First Quarter 2023 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nancy Meyers. Please go ahead.

Good morning, everyone. And thank you for joining us today for our earnings call presentation. On the call today we have Scott Greenberg, Interim CEO and Executive Chairman; Keith Goldstein, President and Chief Operating Officer; Margaret Gezerlis, CFO, and Curt Kole, Executive Vice President Sales and Global Strategy to give an update on our first quarter 2023 results. Following our management presentation, we will have a Q&A session. I would like to bring your attention to the note on forward-looking statements on Slide 3. Today's presentation and the answers to questions include forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors including those described under the forward-looking statements caption and on the risk factors of the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I will now turn the call over to Scott Greenberg for some opening remarks.

Thank you, Nancy. I like to welcome you to our first quarter of 2023 earnings call. We will pull by a business and financial update and then have a Q&A session. Through our internal investments and acquisition of PeriShip and Trust Codes, we believe that VerifyMe is developing a unique platform. Our goal is to increase market share and revenue with both a complete solution and an increased sales and marketing effort from the past. The first quarter of 2020 the results and the pursuit of new opportunities continues to lead us to our positive future outlook. I believe the presentations today will demonstrate that the company has crossed a bridge from a technology startup to an operating company. Based upon our latest projections that companies to continues to target a positive adjusted EBITDA for 2023 and revenue growth of approximately 40% both through the acquisitions and organic growth. Our 2023 goal is continue to integrate and focus on the technologies that we purchased. Next slide, please, Nancy. Just a little bit about the financials and equities snapshot. Our stock price on May 4 was $1.86 and our shares outstanding is 9.4 million, which gives us a market cap of approximately $17.5 million. Our cash balance as of March 31, 2023 was approximately $3.1 million. Our total debt was approximately $2.3 million as of March 31, 2023. And we do have an additional $500,000 available under our line of credit with PNC Bank. In the first quarter, we had a substantial increase of revenue, our revenue went from $200,000 to $5.7 million. And our inside beneficial ownership is approximately 16%. With that being said, I now like to turn over to call on the Keith Goldstein.

Great. Thank you, Scott. And for those of you who have joined the call today, it's a pleasure to speak with you about VerifyMe. I'd like to provide a business update since our Q4 earnings call about six weeks ago on March 28. So during the last call, I discussed our acquisition of Trust Codes, a software-as-a-service solution company providing brand protection, unit level traceability and consumer engagement. That coupled with the acquisition of PeriShip, just over a year ago, has allowed VerifyMe to transition from a product based brand protection company to a software-driven company, providing end-to-end supply chain assurance and trust. So what does this mean? Well, a few years ago, VerifyMe's product portfolio consisted primarily of covert inks red with patented devices for grant protection. This is great technology with a specific use case. Large companies, random vectors in non-counterfeit [technical difficulty] we'll address. Recognizing this, we embarked on broadening our offerings, we acquired PeriShip with a unique predictive analytics platform, providing shipping, monitoring and intervention services. We take in shipping data in programmatically analyze it with key data elements like traffic in weather provided by our in-house meteorologists to help our customers know when to ship perishable items, saving on costly spoilage. We intervene our reach into the network to get product to its intended destination on time, if needed, positively impacting the environment by reducing re-ships in thereby carbon emissions. And ultimately, improving the customer and consumer experience. Real life examples of this are in the vaccine space, where we provide guidance and mentorship, reducing the risk of spoilage and re-ships in the apparel space, where a tuxedo must arrive on time for that Saturday wedding. Now, add Trust Codes's capabilities to provide supply chain transparency, with unit level product traceability, authentication, consumer engagement and brand-centric storytelling, all delivered to a smartphone, and it makes VerifyMe an end-to-end software driven supply chain provider. Our transition to this software-driven logistics company was deliberate with a goal to create a broad solution set for supply chain assurance, with the ability to generate recurring revenue, and customer stickiness. Our covert ink is still an important part of securing the supply chain, but it now plays a supporting role than a primary role for the company. We're integrating the three businesses as Scott said together to bring the unified message and solution to the market. In a few minutes, Curt Kole our EVP will speak more about that. As we look to generate customer revenue, one of the industry verticals that we are focusing on is the food and beverage market for Technavio, a market research firm, the U.S. perishable goods transportation market is estimated to be valued at $4 billion in 2022 and grow with a CAGR of 8% to 2027. We have strong reference accounts in many food and beverage categories to include beef, fruit, honey, nutraceuticals, wine and infant formula. These products can all benefit from our supply chain assurance services, whether it's getting something perishable to its destination on time, providing consumers comfort, that what they're purchasing is genuine, are helping a brand manage an unfortunate recall down to the unit level. So moving on to the third bullet point. Our Trust Codes platform is one of the few cloud-based item level traceability and authentication platform that is currently GS1 validated for its end-to-end traceability solution. GS1 non-profit organization in developing and maintaining the global standards for barcodes, and everybody's probably familiar with the UPC or Universal Product Code, it's black and white picket-fence barcode visible on virtually everything we buy. It scanned billions of times each day around the globe. While, the UPC codes been around for 50 years. It's a long time. And as the industry has developed and evolved, so has digital barcode and technology, adding functionality that's meaningful for supply chain participants. As a result, industry in GS1 are moving towards two dimensional barcodes like the QR code, which will ultimately replace the UPC code on products. What this means is that more information can be layered into the barcode to meet the demand of regulators, consumers and brands for more product information, supply chain transparency, traceability, authentication and recall management. As such, GS1 has come out with this program called Sunrise 2027. And they've laid out plans to help ensure that these 2D barcodes are going to be usable at retail points of sale by 2027. So the goal here is to replace UPCs with 2D barcodes. And while this is a massive undertaking, we don't know if all businesses will be compliant by then, we do know that many large U.S. retailers are already embracing this. And we, VerifyMe has the technology advantage with Trust Codes platform, being GS1's standards based in already oriented for this migration. The last business update I have relates to adopting a carrier-agnostic approach for our PeriShip predictive analytics platform for shipping, monitoring and intervention services. To-date, our solution has been built around one major freight logistics provider. Over the past few months, we've made significant strides in developing the ability to provide our premium monitoring services for other shipping companies, which will provide new sales opportunities for us to grow our business. With that, I'll hand it over to Curt Kole to speak about sales and marketing initiatives.

Keith, thanks very much. And thanks to everybody for joining the call today. I'm going to touch on a number of the initiatives that we've undertaken that Keith has summarized in his -- and we're going to talk about what we're doing to approach this market in a different way. We are integrating our sales force as Keith mentioned, the combination of all three entities puts us into a position that's very unique in the industry, our ability to be able to deliver end-to-end visibility, unit-level traceability, and a number of the other features that are presented through VerifyMe and Trust Codes. We feel that we're in a very unique position on the path to victory here. We have embarked on a rebranding process to shift our identity messaging. And that's expected to roll out in total by the end of Q2, and will include a total overhaul of the PeriShip positioning, as well as reference to combination in the blended approach that we take going forward. This sales approach offering information logistics, is critical to providing solutions and capabilities that we believe are unique to the industry. We're about to see and starting to see the fruits of our labor. We've spent the last three months with an outreach program, our marketing efforts from a digital perspective, as well as from a print perspective are starting to bear fruit. And we're excited about the possibilities going forward. We begun to attend trade shows. And as things open up in person meetings are allowing us to spread our message to be able to deliver the message that we spent 20 years in the logistics business with the addition of Trust Codes and VerifyMe, we've shifted our focus to an information logistics process. And we believe that that's something that is going to separate us from the pack. And we believe, based on recent response from our customers that we're on the road to success here. And I appreciate the opportunity to share this with you and look forward to talking to you more in the future. And with that, I'll flip it back to you on Margaret.

Thanks, Curt. And good morning, everybody. And thank you for joining. Our Q1 financial result -- well actually, before we get to the financials, Keith, do you want to talk about the revenue by market sector?

Certainly, so the slide that is being presented shows where our revenue is coming from. It really supports when I spoke about with a focus on food and beverage. We do have many existing customers within the PeriShip family and the Trust Codes family that are in that food and beverage market. And they can all benefit from the services that we can offer relative to traceability and secure transport. So that's really one of our key focuses. And with that, Margaret, I'll hand it back to you to cover the financials.

Okay, great. Next slide. It's showing blank. Is everybody seeing it, the financial slides? There we go. Great. So our Q1 [technical difficulty] $5.7 million, up from $0.2 million in Q1 of 2022. Gross profit was $1.8 million or 31% for Q1, 2023, up from $0.1 million in Q1, 2022. The increase in revenue relates primarily to the acquisition of the PeriShip business in April 2022. Including PeriShip on a pro forma basis, revenue increased by approximately $0.5 million or 9%. [Technical difficulty] with the fourth quarter showing the solid performance while the first and second quarters usually have lower revenue. Next slide please. Our gross profit margin has the decreased due to nature of the business and the current product mix. G&A has increased at $1.3 million in Q1, 2023 when compared to Q1 2022, related primarily to the acquisition of PeriShip business as well as increases deal costs related to the acquisition of the Trust Codes business, severance expense and increased amortization and depreciation expense. Adjusted EBITDA loss was $0.5 million compared to adjusted EBITDA loss of $1.1 million, that's an improvement of $0.6 million or 56%. Including PeriShip, on a pro forma basis, adjusted EBITDA improved by $0.5 million or approximately 40%. Okay, so it's showing blank on me, but I'm hoping that everybody else can see the slide if so next slide. That will show the balance sheet. We maintain a strong balance sheet our cash is $3.1 million as of March 31 2023, a decrease of $0.3 million from December 31 2022. In the quarter, we paid cash of $640,000 for the Trust Codes business acquisition and the related deal costs and $160,000 in repayment of the term note and interest and drew down $500,000 on our revolving line of credit. Our working capital as of March 31, 2023 is $2.1 million and our debt totals $2.3 million, and we have $500,000 available under our revolving line of credit that we can draw down. As part of the Trust Code's acquisition, we have an increase of $2.1 million in goodwill and intangible assets, and a contingent consideration of $1.1 million on our balance sheet as of the quarter end. The contingent consideration relates to the earnout of [indiscernible] which is a cash earnout and equity earnout. We have the option at our discretion to pay the equity consideration in cash. With that, I'd like to open the floor to questions that you might have.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Mike Petusky with Barrington Research. Please go ahead.

Good morning. So I wanted to the -- G&A or the slide that included G&A sort of went by quickly there. How much how that G&A which looked heavy for the quarter. How much of that sort of non-recurring, like what's the normalized quarterly G&A number to be modeled going forward? Thanks.

Hi, Mike. Thanks for your question. So what we had in the quarter, we had our severance expense that including G&A was about $303,000. So that's something that you will see going forward. Then what you want to do is add stock-based compensation for our directors, because in the current quarter, they have decided to change the timing of when that compensation comes in. That's going to be about $500,000. Then you have a onetime professional fees for the Trust Codes acquisition that comes to about $300,000.

Okay, so I mean, sort of normalized, what does it look like going forward?

So normally, it looks about $2 million $2.2 million around there.

Okay. That's more in line with what I thought. And so going forward, do -- you guys sort of appear to have reaffirmed the previous top-line guide? I mean, do you expect sequential revenue growth each of the next three quarters is that how this should play out?

Yes, so we do still expect our quarters to do an increase. Our fourth quarter is the strongest. So we expect the most growth in the fourth quarter. But we do -- we do expect both in -- hopefully in the next -- in the second and third quarters as well.

Okay. And what was what was, I guess some of the financial, some of the financial commentary was a little bit hard to hear. What was the legacy VerifyMe revenue for the quarter?

The legacy VerifyMe revenue for the quarter was about $200,000. And I apologize, because I think it's my sound that it's coming out -- is not coming out very well. But it's $0.2 million for VerifyMe, for the Q1, 2023.

Okay, great. And they may --

I'm sorry, Margaret. This just Scott back. I got disconnected and they couldn't get me back in but I'm back on.

Okay, great. Okay.

And I just have one more question. This may have also been mentioned in the financials, but it was again, it was hard to hear. The PeriShip comparison. I know it wasn't part of the company last year Q1. But did that business grow year-over-year?

Hey, Margaret, I'll take that. The answer to that, as we were very pleased that this is the first quarter that on a comparison basis PeriShip had organic growth. PeriShip's growth was over 8% organic for the quarter compared to the first quarter last year pre-acquisition. So that's pretty that's pretty exciting news for us.

Was it like 52 something like that?

It's closer to well, this is consolidated. PeriShip was closer to $5 million and change last year.

Okay. And PeriShip this quarter was what 5-5.4?

Somewhere around there. Yeah, I mean, it's --yeah.

Okay. And 8% is the year-over-year. All right. Well, very, very, very good. Well, thanks, guys. And good job. Thank you.

Thank you.

[Operator Instructions] Our next question comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Okay, great. Good morning, guys. I appreciate the update. I'll just -- I'll ask you a couple of questions. I appreciate that the update on the guidance outlook, Scott. I think last quarter, last couple of quarters, you were also mentioning a big target organic growth for the legacy VerifyMe business. And I know you guys are working on integrating these three companies now, more or less. But is the organic growth of VerifyMe that you're targeting 50%-plus for 2023, is that still the case?

Yes, it is still the target to get 50% growth at the VerifyMe level? We did roughly $1.7 million last year. So that's correct. And then to realize -- I'm, I missed the first call. But the thing to realize and I don't know if on the first question of Margaret brought up the fact that our business is somewhat seasonal. And as we got more involved with the company, both developing the selling VerifyMe and the selling of Parrish ship, we realized that the first quarter is seasonally going to be the slowest. And then it should build from that point. So that's one of the things that only all three businesses without seeing. So we expect a quarter-by-quarter improvement.

Okay, great. And then my next question would be can you talk about the pipeline at all and how do you measure pipeline, and just what that looks like for the core Verify -- or the legacy VerifyMe. Or if you will -- pipeline for the three combined companies. Is it too early to talk about that?

Yeah. If you look at the pipeline for PeriShip, basically you have the longstanding customers so they have a very sticky business. But we're working on some new programs and projects that we believe will take us up in that thing. So I would say, again, most of PeriShip's business customers you currently have in place. When you're looking at the Trust Codes and VerifyMe business, there you're looking at the more of the pipeline in an opportunity. And in order to accomplish our goal of the $28 million of revenue, we looked at the pipeline very carefully. And we discounted it. And we took what we feel we're comfortable with. And that's how we came up with the target number. So obviously, the popup pipeline is much, much larger than the number we're putting in to the revenue projection.

Yep, understood. And then maybe just a follow up, it's like a critical piece of the revenue in that relationship with PeriShip. But with FedEx, it's the largest customer. Outside of FedEx, can you talk about how many other customers are material to the revenue of PeriShip or for your guidance for the year? How much is FedEx kind of represented that?

Well, you just look at it even though, FedEx is a supplier of ours as well, as far as direct revenue. It's -- I believe, Margaret, you can answer it but I think it's under 15%. So while we have a strong relationship with FedEx, the total revenue as a customer is below 15%. Most of our dealings are directly with the customers of FedEx. And so we're not relying on just FedEx as a customer.

Okay, great. That's an important distinction. Okay. Understood. Well, great. I appreciate the update guys, and happy to hear things are on track. I'll hop back in queue.

Thank you.

As we have no further questions, I would now like to turn the conference back over to Scott Greenberg for any closing remarks.

Okay. Thank you moderator. As you could hear from today, the company has made significant progress in the last year. And you hearing about all these opportunities in different areas. Some of them are in our legacy business things like baby formula, or where we're getting involved with Trust Codes, who already had a significant client there, as things that we're hoping to leverage into many other areas. The thing to realize overall, is that we believe that the combination of the three is going to give us enhance marketing and sales ability in all three sectors, not just in one specific sector. So our sales force our marketing our trade name, our trade shows are really appearing overall in the whole company. And with that we expect the growth that we're forecasting for the year. And we look forward to updating you next quarter. Again, everybody, thanks for taking your time out of your day. And like usual, if you have any questions, please feel free to call the company. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.