VerifyMe, Inc. (VRME) Q4 2024 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to the VerifyMe Fourth Quarter 2024 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 also note today's event is being recorded. At this time, I'd like to turn the floor over to Nancy Meyers, CFO. Ma'am, please go ahead.

Good morning, everyone, and thank you for joining us today for our earnings call presentation. On the call today, I'm joined by Adam Stedham, CEO and President, who will give an operations and strategic update. 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 Adam Stedham for some opening remarks.

Thank you, Nancy. So 2024 was a significant year for VerifyMe. During the year, we invested significant time, energy and resources into the code portion of our Authentication segment. As we discussed on our last earnings call, these investments did not yield the returns we desired and the investment in time and resources dragged on overall company growth. So our annual revenue for 2024 was 4% below the revenue in 2023. However, we did experience year-over-year improvements in gross profit, gross margin, and adjusted EBITDA. In addition, the company grew our total cash net of debt in 2024. So during our last earnings call, the company shared that we are taking steps to reduce investments in areas that are not providing the desired returns, and we are diligently working on strategic investments to deliver shareholder value. During January 2025, we further expanded our capabilities in this area by completing a $4.7 million warrant inducement capital raise, and retiring the company's bank debt. In addition, our convertible debt reduced from $1.1 million to $800,000. The remaining holders of convertible notes are all affiliates and members of the Board of Directors. So after adding further to verifying these options to generate additional capital and liquidity, we've also filed a $15.8 million aftermarket sales offering to be used at our discretion. So as a result of all of these steps, the company is sufficiently capitalized to pursue strategies aimed at rewarding the shareholders. We continue to actively work with bankers and advisors evaluating multiple options and defining our plans. So let me shift the conversation to our existing operations. So first I'd like to discuss our Precision Logistics segment. It's important to note the PeriShip business in this segment is a positive cash generating business that provides a valuable service to the marketplace, and we are continuing to optimize our sales strategy. In 2024, we increased the number of proactive customers by 6% over 2023. However, the shipments by existing customers in the proactive service line were down 6% in 2024 versus the previous year. So we've hired additional sales resources in 2024, and we are also piloting various marketing strategies to optimize our approach to marketing and sales. So we believe that we will define the optimum sales strategy for this business. So at this point, I'd like to mention our Authentication segment. The company divested the Trust Codes Global business on December 8, 2024. During 2024, this business had an operating loss of $1.2 million, excluding impairments. Our Authentication segment also includes our Ink business. We are continuing to review our strategy for the Ink business, but it's important to consider that this portion of the company represents less than 1% of overall company revenues. So overall, I feel that we've taken the steps to position the company to create value for shareholders going forward. So at this point, I'd like to turn the call back over to Nancy Meyers, our CFO, and she will review the specific Q4 financials.

Thank you, Adam. The fourth quarter revenue was $7.7 million versus the prior year of $8.7 million, a decrease of $1 million. The decrease in our Precision Logistics segment primarily relates to a discontinued contract with one customer in our Premium services, as has already been disclosed. In addition, with Thanksgiving arriving later than usual this year, there were fewer days from Black Friday to December 31st, making this the shortest peak season since 2019. The growth in the Authentication segment did not materialize in 2024 and as Adam mentioned, we divested of the Trust Codes Global business on December 8, 2024. Gross profit decreased $0.5 million to $2.4 million in Q4 2024 versus $2.9 million in Q4 2023. As a percentage of revenue, gross margin was 32% in Q4 2024 versus 33% in Q4 of 2023. While the quarter did result in a decrease in year-over-year gross profit percentage, the loss of the one customer in the Premium services was partially mitigated by other process improvements made. During our last earnings call, we stated that we anticipated our full-year 2024 gross margin to exceed full-year 2023, even though we expected Q4 gross margin percentage to be below Q3 due to the seasonality associated with our proactive revenue. Our full-year gross margin was 36% compared to 32% in 2023. Operating expenses were $2.8 million in Q4 of 2024 and in Q4 of 2023, segment management and technology expenses decreased $0.1 million for the quarter. However, this was offset by an increase in sales and marketing spend. Our net loss for the quarter was $0.5 million, or a loss of $0.05 per diluted share compared to net income of less than $0.1 million in the fourth quarter of 2023. Again, the main driver is the loss of one customer in our Premium services. Although our adjusted EBITDA was lower in Q4 of 2024 versus Q4 of 2023, it was positive for the sixth quarter in a row and improved to $1 million for the year 2024 versus $0.4 million for the year 2023. On the last slide is our balance sheet as of December 31st, 2024. Our cash as of December 31st was $2.8 million, a decrease of $0.3 million from $3.1 million on December 31st, 2023. During the year, our use of cash included $0.6 million in repayment of debt and interest. Due to the seasonality of our Precision Logistics segment, our AR unbilled revenue and accounts payable are higher at year-end compared to the other three quarters. As of December 31st, 2024, we had $0.9 million remaining on our loan and $1.1 million on our convertible notes. There are no borrowings under our line of credit, and we have $1 million available to us. In January, we entered into an Inducement Letter Agreement and approximately 1.5 million warrants are exercised for $4.7 million. In consideration for the agreement, a new unregistered warrant for approximately 1.5 million at a price of $4 was issued. As Adam mentioned with the proceeds from this transaction, we paid down the remaining debt on our term loan, and in addition, we have converted about one-third of the convertible notes. With that, I would like to turn the call back to Adam.

So thank you, Nancy. Before we open the call for questions, I'd really like to review the current situation for the company. So the company operates a cash flow positive business that provides a differentiated service for shippers of time and temperature sensitive goods. We are increasing our efforts to identify and pursue avenues for expansion of our Precision Logistics segment. We have a strong balance sheet and $0.46 per share of cash on hand. Also, the company's act has access to additional low cost capital to pursue avenues for meaningful shareholder value creation. So overall, I'm pleased by the foundation we've created to move the company forward and reward our shareholders. So at this point, let's open the call up for questions-and-answers.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And our first question today comes from Michael Petusky from Barrington Research. Please go ahead with your question.

Hey, good morning.

Good morning, Michael.

Hey, good morning. Nancy, could you help me in terms of your expected share count for Q1, just to sort of level set?

Yes. So we're good – it'll be about $12.5 million.

Great. And then in terms of – Adam, I would assume in terms of logistics in Q1 trends, I would assume they're probably soft just sort of from a macro perspective, and I'm assuming in terms of company specifics. Any commentary around what you're getting back there?

Sure, sure. I think that there's a couple of factors to it is, first off, the previously announced loss of the one customer will continue to be a drag on comparatives in Q1 and Q2. That event happened at the end of Q2 last year. So from that perspective, on the premium side, that will continue to be a drag. We have had some growth in our direct premium business, but that's not large enough to offset that one large customer. On the proactive business, the business is relatively stable – not even relatively, it's very stable. With that said, overall market conditions do seem to be down a little bit. The total number of shipments are down a bit. As we pointed out, we try to give our effectively a same-store sales number for you. So last year, we did see that down slightly. That trend continues to be prevalent. We are adding more customers. And so hopefully, that's balancing out the increase in number of customers and the reduction of shipping with existing customers.

Okay. And then really the last area I just want to touch on. It doesn't appear to me that you guys have really provided any guidance around what you expect in 2025. Any comment on that and any help you could give on that?

No. We haven't given any guidance, and we don't plan on giving guidance. I think overall, I would look at the business and assume it's relatively stable. We are very stable other than the one customer that we lost last year. On top of that, we made significant efforts last year to align our cost with the changes that were associated with the loss of that customer. So at this point, we've aligned cost with revenue, with that customer. And now we're continuing to look to optimize our sales, which should lead to new customers and continue to add our proactive customer base. With that said, we're also going to be subject to the same market conditions as everyone else, which I think are a little bit unpredictable right now. So our inability to predict the external market, in combination with the fact that much of our 2025 will be based upon how effectively we deploy the resources that we have available to us, which is difficult to predict the timing of anything like that, the money is not burning a hole in our pocket, we are adamant about diligently working very hard to identify options that can provide meaningful shareholder return with minimal risk. And so it's hard to predict the timing of those types of events. And that's why – overall, that's why we're not giving guidance for the year.

Can I just sort of ask a part B to that last question and then I'll get off here? The fourth quarter came in softer than I had expected – as expected you guys to be able to mitigate more of that FedEx loss than you ended up doing. Is it reasonable to model? Does it pass the last test that, "Hey, sort of that low double-digit decline on the topline really should be sort of assumed at least through the first half, given the way that comps rolled through due to that loss"?

I don't think – I think that's a very reasonable modeling assumption given all the factors. As we said, we live in a somewhat unpredictable world right now and yes, there's some very exciting things happening and then there's some things that are not exciting happening in the world. But from a modeling perspective, I think that's a smart move on your part.

Okay. Very good. Thanks.

Not a problem.

[Operator Instructions] And ladies and gentlemen, at this time, I'm showing no additional questions. I'd like to turn the floor back over to management for any closing remarks.

Perfect. Thank you. So I appreciate everybody joining the call. As we said, 2024 was quite the transition year for the company. And I think we've successfully navigated that transition. The company has set a strong foundation for growth, and we look forward to continuing to communicate with you throughout 2025. So thank you.

And with that, we'll be concluding today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.