VerifyMe, Inc. (NASDAQ:VRME) Q4 2022 Earnings Call Transcript

VerifyMe, Inc. (NASDAQ:VRME) Q4 2022 Earnings Call Transcript March 28, 2023

Operator: Good morning, and welcome to the VerifyMe Year-End 2022 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 today. I would now like to turn the conference over to Nancy Meyers, Vice President and Investor Relations. Please go ahead.

Nancy Meyers: 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 you an update on our fourth quarter 2022 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 three. 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.

Scott Greenberg: Thank you, Nancy. Thanks for participating on the fourth quarter of 2022 earnings call. We believe the company is developing a unique platform, both organically and through the acquisitions completed. In 2023, our goal is to further integrate our acquisitions to enhance the company’s platform. The fourth quarter of 2022 results and the opportunities being pursued leads us to a positive future outlook. I believe the presentations today will demonstrate that the company’s at an inflection point, and for 2023, the company forecasts of positive adjusted EBITDA and increased revenue for the year with a strong balance sheet. We believe that the VerifyMe, PeriShip, and Trust Codes brands are important both individually and the combined strategy for future growth.

In addition, I’d like to thank Patrick White for his contributions in the past of being the company CEO. That being said, I believe we have put together an experienced management team and Board of Directors that’s poised for success. Next slide please. Just a little bit about the financial and equity snapshot. Our stock price today is roughly about $1.60 and our sales outstanding is 9.4 million, which us a market cap that’s closing in on $15 million. Our cash balance as of December 31st 2022 was $3.4 million and that’s socially consistent with our June balance, so our cash has been holding up and roughly staying equal in the six months. Our debt is $1.9 million as of December 31, 2022. And on a positive note, our debt is normal bank debt with PNC Bank.

Our revenues for fiscal 2022 is $19.6 million, and as you see our projection later on, we should grow revenue both organically and through acquisitions by over 40% in 2023. And our inside beneficial ownership is approximately 17%. With that being said, I’d now like to turn over the call to Keith Goldstein.

Keith Goldstein: Great. Thank you, Scott. For those of you who don’t know me, I’ve been the Chief Operating Officer of VerifyMe for approximately four and a half years, and the President and Chief Operating Officer for just over a year. It’s a pleasure today — rather it’s a pleasure to speak with you today about VerifyMe. As Scott mentioned, we had a record fourth quarter with revenue coming in at $9.7 million. The fourth quarter is historically the strongest quarter for PeriShip due to holiday shipments. In addition, our sales opportunity pipeline for the brand protection business continues to be robust, and with the acquisition of PeriShip last April, we now have a strong sales opportunity pipeline in our information logistics business as well.

Last month, we acquired the assets of Trust Codes, a New Zealand based software-as-a-service company. Trust Codes is in the brand protection space, connecting a brand to the consumer with store retailing, data transparency, invisibility of the journey for each and every item in the supply chain. We view the acquisition of Trust Codes as strategic for the company. Combining Trust Codes unit level traceability solutions with PeriShip’s information logistics platform, we now have a unified software offering that allows us to provide end-to-end security and trust in the supply chain from the point of a products manufacturer all the way through to the proof of delivery. I’ll share more about the benefits from the Trust Codes acquisition when we move to the next slide.

We entered into a five-year extension on our agreement with our strategic partner, HP Indigo. For anyone that may be new to VerifyMe, HP Indigo manufacturers and sales offset quality digital printing presses. We provide our covert pigment to HP Indigo. They convert it into an inc. for the Indigo presses, which we market and sell as VerifyMe Inc. The five-year extension with HP Indigo also offers new financial incentives for them to promote all of our brand protection solutions. We’ve added PeriShip services to our social media marketing campaign as a first for the company, and it’s starting to gain traction. With the addition of Trust Codes, we’ll begin promoting unified messaging around our ability to provide supply chain security and trust.

We’ve also developed a mobile PeriShip app that will be rolling out to customers in Q2. Curt Kole, Executive Vice President of the company will provide more details on our sales and marketing initiatives in a few minutes. Lastly, the company has demonstrated effective internal controls. This is a great achievement for a company our size and puts us in a very strong position to build off of as we continue to grow the company organically and inorganically. Next slide please. So, now I’m going to speak about the benefits from the Trust Codes acquisition. And as I mentioned earlier, the Trust Codes acquisition is strategic for the company and I’m going to spend a few minutes sharing the key benefits that we see resulting from it. Until the acquisition, the cloud-based brand protection solution that we sold was a white-labeled solution from a third-party.

It allowed us to build the VerifyMe brand and go-to-market with a covert authentication solution with minimal investment. We reached a point in our growth cycle where it made sense to have greater control and flexibility in the software development cycle. The Trust Codes solution is our own. With our own software developers, we can continually enhance it as a best-in-class offering and modify it for specific customer requirements. It also reduces our product costs, increases our margins, and allows us to be more competitive when needed. We consider it to be a proven, highly scalable platform, having over 700 million products marked in the field for more than 500 companies with product scans in 141 countries. Most of Trust Codes current customers are in the food and nutrition space, which is a natural tie-in to PeriShip’s customer base and core competencies.

The software platform uses the same programming language and development tools as the PeriShip solutions, allowing for system interoperability and product development resource sharing. Lastly, the acquisition gives us a foothold into Australasia and a peak into China. So, to reiterate, the combination of VerifyMe’s covert solutions, Trust Codes unit level product traceability and PeriShip’s last mile information logistics solution allows us to provide end-to-end supply chain security and trust from the point of manufacturing, all the way to the proof of delivery, creating a truly unique software logistics offering. I’ll now turn it over to Curt Kole to discuss our initiatives to drive new business and revenue by market sector.

Curt Kole: This is Curt Kole and thank you, Keith. I’m going to spend a few minutes talking about some of the initiatives that we’ve embarked on post-acquisition, some of the things we’re going to do in the future that we believe is going to drive new business. We are so enthusiastic about the recent acquisition that we’ve embarked on a total rebranding, including logo, website, messaging, that encompasses all the blended services. We believe that the acquisition builds out the brand in a way that we have not previously. And we are looking at selling propositions to all aspects of the enterprise, inclusive of PeriShip, VerifyMe, as well as Trust Codes. We’ve embarked on a full scale digital marketing campaign to include social media, paid search, email marketing content and content development.

In addition to our sales efforts that we have embarked on originally, we believe that this is going to enhance our opportunity to inform the market and going to position us in a way that is unique to the space. As Scott and Keith mentioned, we are in the info logistics business. We handle no product. We manage the information associated with that, and we believe that that value increases on a daily basis, given that it’s about data, about data and about data. We’re fortunate enough to be aligned with folks in our organization who understand that, who understand the value of it, and how to translate that into new opportunity and new revenues. We also engage the third-party lead generation organization to cast a wider net. Given the addition of our new organization, we believe we’re positioned in a unique way and we want to make sure that we’re touching all of the folks out there that could have some need for our services and in the unique nature of what we deliver from a logistics perspective.

Keith mentioned the mobile app. One of the most recent developments is putting our tools in the customer’s hand. We’ve always had a very robust customer portal. We believe we are going to translate that into a handheld device so that they can understand the nature of their shipments, the status of all of their shipments in transit without having to open their computer or to reach out to us directly. The upselling opportunities that are presented as a result of the Trust Codes, VerifyMe, PeriShip collaboration have opened up areas for us that we have here before not been able to address. They come to the table with a great tech skillset. We look forward to working with them. We’ve had the opportunity to engage with them already. They’re in the States this week and uniquely, we are meeting with a single customer that currently does business with PeriShip and VerifyMe, because of their vast interest in the serialization aspects that Trust Codes brings to the table.

We’re enthusiastic. We’re excited. And we look forward to the next year ahead. Next slide please. This is a segment of our business, a segment that shows not much change from previously. We believe that the largest portion of that pie will continue to grow. We also believe that the health and personal care, health and beauty, however you choose to term it, presents huge opportunities with regard to Trust Codes in the technology that they deliver. We expect that we are able to grow the apparel business as a result of this acquisition, which is a small segment of our business, and we look forward to pursuing that opportunity this week as I mentioned in the meetings that we have scheduled. And with that, I will pass the baton and I appreciate your time and your interests.

Keith Goldstein: Thanks Curt. Just to quickly provide the 2023 outlook, we are projecting revenue to be at $28 million or better for 2023, which is slightly better than the guidance that we’ve previously provided. We expect the gross margin to be consistent with 2022 or better, which was at 33%. And as Scott had mentioned we are projecting a positive adjusted EBITDA. And with that, I’ll turn the presentation over to our CFO, Margaret Gezerlis, to touch upon the financials in greater detail.

Margaret Gezerlis: Thanks Keith. Good morning, everyone. Thank you for joining us. As you heard from Scott and Keith we continue showing record results and have a positive outlook for the upcoming fiscal year. Our Q4 revenue was $9.7 million, an increase of 86% over the third quarter revenue. Gross profit margin was . Lower gross margin was in line with our seasonal shift in product mix between proactive and premium revenue streams. We had a net income of $0.1 million in Q4 2022 compared to a net loss in the third quarter 2022, and a net loss of $1 million in the fourth quarter of 2021. Next slide please. In this slide, you can see the improvement of our financial results. We remain consistent quarter-over-quarter. Our adjusted EBITDA is a positive $0.7 million in the fourth quarter, an increase of $0.9 million or approximately 500% when compared to the third quarter adjusted EBITDA loss $0.2 million.

Our business is seasonal with fourth quarter showing the strongest performance. Our first quarter is lower performing in comparison, however, we do expect a positive outlook to fiscal year 2023 as mentioned previously. Next slide please. The next slide illustrates the dramatic increase in revenue and gross profit in 2022, which includes the acquisition of the PeriShip business starting on April 22nd, 2022. We expect to maintain or improve our gross profit margin for the fiscal year 2023. Next slide please. Our cash as of December 31st, 2022 is $3.4 million, a decrease of $6 million from $9.4 million on December 31st, 2021. Since the acquisition of the PeriShip business in April, 2022, we required an initial out cash outlay of $7.5 million and a repayment of debt in Q3 of $1.9 million our cash has remained steady.

If you look at comparison to September as Scott previously mentioned. As for year-end, we have working capital of $4 million, $10.4 million of intangible assets and goodwill related to the acquisition of PeriShip and a four-year term loan with PNC of $1.9 million. We also have a $1 million revolving line of credit with PNC, of which no amount has been withdrawn as of December 31st, 2022. We continue to believe that we have sufficient cash to cover our operations for the foreseeable future as our business starts to generate cash. We believe the acquisitions of the Trust Codes assets in Q1, 2023 allows us to provide a comprehensive solution to our customers that will improve our results. We continue to grow the business organically, but are always looking for opportunities to increase our shareholders’ value.

With that, I’d like to thank you for your participation and open the floor to any questions you might have.

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Q&A Session

Operator: We will now begin the question-and-answer session. And our first question here, we’ll come from Jack Vander Aarde with Maxim Group. Please go ahead.

Jack Vander Aarde: Okay. Great. Good morning guys. I appreciate the update. Thank for taking my questions. Scott, good to see the strong finish of 2022 with strong fourth quarter revenue. Obviously, the bulk of that was PeriShip. And I think in the preliminary announcement I saw that the core VerifyMe business seemed to be up 60%, which was ahead of your 50% year-over-year growth guide.

Scott Greenberg: Yes.

Jack Vander Aarde: So, just how do you — you gave new guidance for 2023 of $28 million for revenue. How does that factor in? How do we factor in the core VerifyMe business? Is it still at that 50% clip in your mind, or any comments would be helpful?

Scott Greenberg: Yes. I mean, on the positive on the VerifyMe business is twofold. One is the incremental gross profit is typically over 60%. So, as we improve VerifyMe, it has the high margin business. We do expect the VerifyMe business again to grow in excess of 50%. And that was taken into consideration for our ability to raise the guidance from an excess of $25 million to an excess of $28 million. So, the answer to your question is good news. The answer is yes. And why we feel positive is you could see all the additions we’ve made to the technology and the features of the technology and the mobile apps to generate additional revenue. This is the things that the company never had before, and we’re starting to make a significant progress in those areas. So, we are optimistic for both VerifyMe technology, PeriShip technology, and Trust Codes, all having organic revenue growth in 2023.

Jack Vander Aarde: Okay. Great. And then, since the PeriShip acquisition did close in April, and just going — circling back to your new guidance for 2023, $28 million at least, I guess just I’m trying to get a better sense of what you expect for a true or a net revenue growth going forward. And I know you’re not providing 2024 guidance by any means. But is there sort of a normalized growth rate you think beyond 2023 once the dust kind of settles the integration?

Scott Greenberg: Well — yeah, that’s why I call it an inflection year. We expect a growth this year, but in order to get and to continue on significant growth, which we believe we will, we have to succeed on what we’re doing, we have to execute. I believe we’ll execute and the growth rate will continue. But this is going to be the inflection year, Mike, in that respect. But we feel comfortable that we will have continued revenue growth, organic growth, significant growth and beyond 2023.

Jack Vander Aarde: Okay. Great. And then maybe just one more for me, and I’ll hop back in the queue. But Scott, you obviously took over as Interim CEO after Patrick White. I thought Patrick White did a great job helping you guys get to this point. So, kudos to him for that. Just maybe an update on your, CEO, new CEO search process or what you’re kind of expecting or looking for.

Scott Greenberg: Well, right now, what we wanted to have the team focus on is executing. And we believe we have all the key people in place to execute. We did not want any distractions from achieving our goals in 2023. So, since I was already Executive Chairman, we all believed that the best approach currently would be for me to continue on as Interim CEO. So, I don’t believe there’s any rush in making changes, but we will evaluate that, but the number one goal is to not disrupt the company. And I believe the way we reorganized the management team, everybody has a clear focus and agenda, and the Board thought it was the best way to approach it.

Jack Vander Aarde: Understood. Okay. That’s it for me. Congrats on the increased outlook and strong results. I’ll hop back in the queue.

Scott Greenberg: All right. Thank you.

Operator: Our next question will come from Mike Petusky with Barrington Research. Please go ahead.

Michael Petusky: Hey, good morning. Thanks for the question. So, I guess, one question I have, and I haven’t seen this, and if I missed it, can you give — and I understand that PeriShip wasn’t part of the business obviously, in the previous Q4. But did PeriShip actually grow in Q4 versus the previous Q4? Or did it shrink? Thanks.

Scott Greenberg: Margaret?