VerifyMe Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 11, 2023

There are 8 speakers on the call.

Operator

Day, everyone, and welcome to the Verify. Me First Quarter 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

Operator

I would now like to turn the conference Over to Nancy Meyers. Please go ahead.

Speaker 1

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 Gazurlis, CFO and Kurt Cole, Executive Vice President, Sales and Global Strategy, to give an update on our Q1 2023 results. Following our management presentation, we will have a Q and 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.

Speaker 1

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 statement caption and on the risk factors of the company's annual report on Form 10 ks and quarterly reports on Form 10 Q. I will now turn the call over to Scott Greenberg for some opening remarks.

Speaker 2

Thank you, Nancy. I'd like to welcome you to our first quarter of 2023 earnings call. We will provide a business and financial update and then have a Q and A session. Through our internal investments and acquisition of Periscope and TrustCo, we believe that VerifyMe is developing a The Q1 of 2020 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 start up to an operating company.

Speaker 2

Based upon our latest projections, the company 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 equity snapshot. Our stock price on May 4th was $1.86 and our shares outstanding is $9,400,000 which gives up a market cap of approximately 17,500,000 Our cash balance as of March 31, 2003 was approximately $3,100,000 Our total debt was approximately $2,300,000 as of March 31, 2003, and we do have an additional $500,000 available under our line of credit with PNC Bank.

Speaker 2

In the Q1, we had a substantial increase of revenue. Our revenue went from $200,000 to $5,700,000 and our inside Beneficial ownership is approximately 16%. With that being said, I'd now like to turn over the call to Keith Goldstein.

Speaker 3

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 6 weeks ago on March 28. So during the last call, I discussed our acquisition of Trustcodes, a software as a service solution company providing brand protection, Unit level traceability and consumer engagement that coupled with the acquisition of PeriShift 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.

Speaker 3

So what does this mean? Well, a few years ago, VERIFIme's product portfolio Consistent primarily of Covert Inc. Read with patented devices for brand protection. This is great technology with a specific use case. Large companies, brand and vectors in no counterfactors they want to address.

Speaker 3

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 And programmatically analyze it with key data elements like traffic and weather provided by our in house meteorologists To help our customers know when to ship perishable items, saving on costly spoilage, We intervene or reach into the network to get product to its intended destination on time if needed, Positively impacting the environment by reducing reships and 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 when to ship, Reducing the risk of spoilage in reships and in the apparel space where a tuxedo must arrive on time For that Saturday wedding. Now add TrustCoat'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 VERIFY. Me an end to end software driven supply chain provider.

Speaker 3

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 Inc. Is still an important part of securing the supply chain, but it now plays a supporting role Then a primary role for the company. We're integrating the 3 businesses, as Scott said, together to bring a unified message and solution to the market. In a few minutes, Kurt Cole, our EVP will speak more about that.

Speaker 3

As we look to generate Customer revenue, one of the industry verticals that we are focusing on is the food and beverage market. Per Tecnavio, A market research firm, the U. S. Perishable goods transportation market is estimated to be valued At $4,000,000,000 in 2022 and grow with a CAGR of 8% through 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 Or helping a brand manage an unfortunate recall down to the unit level.

Speaker 3

So moving on to the 3rd bullet point, our TrustCoaches platform is one of the few cloud based item level traceability An authentication platform that is currently GS1 validated for its end to end traceability solution. GS1 is a not profit organization developing and maintaining the global standards for barcodes. And everybody's probably familiar with the UPC or universal product code. It's that black and white picket fence barcode Visible on virtually everything we buy and it scanned billions of times each day around the globe. Well, the UPC code has been around for 50 years.

Speaker 3

It's a long time. And as the industry has developed and evolved, so has digital barcoding technology, Adding functionality that's meaningful for supply chain participants. As a result, industry and 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 2 d barcodes are going to be usable at retail points of sale by 2027.

Speaker 3

So the goal here is to replace UPCs with 2 d 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, As the technology advantage with TrustCoat's platform being GS1 standards based and already oriented for this migration.

Speaker 3

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 1 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 Kurt Cole to speak about sales and marketing initiatives.

Speaker 4

Keith, thanks very much and thanks to everybody for joining the call today. I'm going to touch on a number of the initiatives 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 TrustCo's, we feel that we're in a very unique position and on the path to victory here. We have embarked on a rebranding process to shift our identity and our messaging, and that's expected to roll out In total, by the end of Q2, and will include a total overhaul of the Peri Ship positioning, As well as reference the combination and the blended approach that we take going forward.

Speaker 4

This sales approach offering information logistics It is critical to providing solutions and capabilities that we believe are unique to the industry. We're about to See, in starting to see the fruits of our labor, we've spent the last 3 months with an outreach program. Our marketing efforts from a digital perspective as well as From a print perspective, we're starting to bear fruit, and we're excited about the possibilities going forward. We've 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 With the addition of TrustCodes and VerifyMe, we've shifted our focus to an information logistics process.

Speaker 4

And we believe that that's something that is going to separate us from the pack. 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, Margaret.

Speaker 5

Thanks, Kurt, and good morning, everybody, and thank you for joining. Our Q1 Well, actually before we get to the financials, Keith, did you want to talk about the revenue by market sector?

Speaker 3

Certainly. So the slide that is being presented shows where our revenue is coming from and it really supports What I had spoke about with a focus on food and beverage, we do have many existing customers Within the Perisher family and the Trusco's 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.

Speaker 5

Okay, great. Next slide, it's It's showing blank. Is everybody seeing it? The financial slides. There we go.

Speaker 5

Great. So our Q1 financial results show revenue of $5,700,000 up from $1,000,000 in Q1 2022. The increase in revenue relates primarily to the acquisition of the PeriShift business in April of 2022. On a pro form a basis, revenue increased by approximately $500,000 or 9%. Our business is seasonal with the 4th quarter showing the strongest performance, while the 1st and second quarters usually have lower revenue.

Speaker 5

Next slide please. Our gross profit margin has increased due to the nature of the business and the current product mix. G and A expenses have increased by $1,300,000 in Q1 2023 when compared to Q1 2022, relating primarily to the addition of the PeriShift business as well as increases due to deal costs related to the acquisition of the $25,000,000 compared to an adjusted EBITDA loss of $1,100,000 That's an improvement of $600,000 or 56 percent. Including periChip on a pro form a basis, adjusted EBITDA improved by $3,000,000 or approximately 40%. Okay.

Speaker 5

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 $3,100,000 as of March 31, 2023, a decrease of $300,000 from December 31, 2022.

Speaker 5

In the quarter, we paid cash of $640,000 for the TrustCo 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 $2,100,000 and our debt totals $2,300,000 And we have $500,000 available under our revolving line of credit that we can draw down on. As part of the TrustCo's acquisitions, We have an increase of $2,100,000 in goodwill and intangible assets and a contingent consideration of 1,100,000 on our balance sheet as of the quarter end. The contingent consideration relates to the earn out the solids of trust codes are entitled to, which is a cash earn out and an equity earn out. We have the option at our discretion to pay the equity consideration in cash.

Speaker 5

With that, I'd like to open the floors to questions that you might have.

Operator

We will now begin the question and answer session. Based upon the time available, we might have to limit shareholder questions to 2 or 3. The first question comes from Mike Petusky with Barrington Research. Please go ahead.

Speaker 6

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

Speaker 5

Hi, Mike, and thanks for your question. So what we had in the quarter, we had our severance expense that including G and A was About $303,000 So that's something that you won't 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. So that's going to be about at $500,000 And then, what you have is our one time professional Fees for the TrustCo acquisition that comes to about 300,000.

Speaker 6

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

Speaker 5

So normalized, it looks about $2,000,000 $2,200,000 around there.

Speaker 6

Okay. All right. That's more in line with what I thought. And so going forward, 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?

Speaker 6

Is that how this should play out?

Speaker 5

Yes. So we do still expect our quarters To do an increase, our 4th quarter is the strongest, so we expect the most growth in the 4th quarter. But We do expect both in hopefully in the next in the second and third quarters as well.

Speaker 6

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

Speaker 5

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. It's not coming out very well, but it's $200,000 for VERIFI, for the Q1 2023.

Speaker 6

Okay, great. And then Remiable.

Speaker 2

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

Speaker 5

Okay, great.

Speaker 6

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 Periscope Comparison, I know it wasn't part of the company last year Q1, but did that business grow year over year?

Speaker 2

Hey, Margaret, I'll take that. The answer to that is we were very pleased that this is the Q1 that on a Periscope basis, Periscope had organic growth. Periscope's growth was over 8% organic For the quarter compared to the Q1 last year pre acquisition. So that's pretty exciting news for us.

Speaker 6

What was it like 5.2 something like that?

Speaker 2

It was closer to well, this is consolidated. Periship was closer to $5,000,000 and change last year.

Speaker 6

Okay. And Periship this quarter was what 5.5%, 5.4%

Speaker 2

Somewhere around there, yes. I mean it's, yes.

Speaker 6

Okay. And 8% is the year over year.

Speaker 5

All right.

Speaker 6

Well, very good. Well, thanks guys and good job. Thank you.

Speaker 2

Thank

Speaker 5

you.

Operator

Our next question comes from Jack Vander Aarde with Maxim Group. Please go ahead.

Speaker 7

Okay, great. Good morning, guys. I appreciate the update. I'll ask a couple of questions. I appreciate the update on the guidance outlook, Scott.

Speaker 7

But I think last quarter, last couple of quarters, you were also mentioning And target organic growth for the legacy VERIFIme business. And I know you guys are working on integrating These 3 companies now, more or less, but is the organic growth of VERIFI, I mean, I think you were targeting 50% plus for 2023. Is that still the case?

Speaker 2

Yes, it is. It's still the target to get 50% growth at the VERIFIme level. We did roughly $1,700,000 last year. So that's correct.

Speaker 7

Got you.

Speaker 2

The thing to realize I'm sorry I missed the first call, but the thing to realize and I don't know if on the first question that Margaret brought up the fact That our business is somewhat seasonal. And as we got more involved with the companies, both developing the selling of VERIFY. Me and the Selling of Para Ship. We realized that the Q1 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 went out seeing.

Speaker 2

And so we expect a quarter by quarter improvement.

Speaker 7

Okay, great. And then my next question would be, can you talk about the pipeline at all? And How do you guys measure pipeline and just what that looks like for the core VERIFI or the legacy VERIFI ME? Or if you want to call pipeline for the 3 combined companies.

Speaker 4

Well, if you

Speaker 7

look at the pipeline

Speaker 2

for Periscope, Basically, you have their long standing 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 to up in that thing. So I would say, again, most of Periscope's Businesses, customers you currently have in place. When you're looking at the trust codes And verify me business, there you're looking at the more of the pipeline and opportunity.

Speaker 2

And in order to accomplish our goal of the $28,000,000 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 pipeline is much, much larger Then the number we're putting into the revenue projection.

Speaker 7

Yes, understood. And then maybe just a follow-up, it's such a critical piece of the revenue in the relationship with PeriChip. 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 Peri Chip, for your guidance for the year, how much does FedEx kind of represent of that?

Speaker 2

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%. That's right. 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.

Speaker 2

And so we're not relying on just FedEx as a customer.

Speaker 7

Okay, great. That's an important distinction. Okay, understood. Well, great. I appreciate the update guys and happy to hear things are on track.

Operator

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

Speaker 2

Thank you, moderator. As you could hear from today, the company has made significant progress In the last year. And you're hearing about all these opportunities in different areas. Some of them are in our legacy business, things like baby formula, where we're getting involved To TrustCoats who already have a significant client there. It's things that we're hoping to leverage into many other areas.

Speaker 2

The thing to realize overall is that we believe that the combination of the 3 It's going to give us enhanced 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.

Speaker 2

Thank you.

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Earnings Conference Call
VerifyMe Q1 2023
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