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VerifyMe(VRME) - 2024 Q3 - Quarterly Report
VRMEVerifyMe(VRME)2024-11-12 21:30
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Revenue and Financial Performance - Revenue for the three months ended September 30, 2024, was 5,435thousand,comparedto5,435 thousand, compared to 5,604 thousand in the same period in 2023, with Proactive services contributing 4,417thousandandPremiumservicescontributing4,417 thousand and Premium services contributing 886 thousand[45] - For the nine months ended September 30, 2024, total revenue was 16,546thousand,comparedto16,546 thousand, compared to 16,600 thousand in 2023, with Proactive services contributing 12,587thousandandPremiumservicescontributing12,587 thousand and Premium services contributing 3,574 thousand[46] - Consolidated revenue decreased by 169thousandinQ32024comparedtoQ32023,withPrecisionLogisticssegmentaccountingfor98169 thousand in Q3 2024 compared to Q3 2023, with Precision Logistics segment accounting for 98% of total revenue[136] - For the nine months ended September 30, 2024, consolidated revenue decreased by 54 thousand compared to the same period in 2023[145] - Precision Logistics segment revenue for September 2024 was 5.303million,adecreaseof2.85.303 million, a decrease of 2.8% compared to 5.457 million in September 2023[110] - Authentication segment revenue for September 2024 was 132,000,adecreaseof10.2132,000, a decrease of 10.2% compared to 147,000 in September 2023[110] - Total revenue for September 2024 was 5.435million,adecreaseof3.05.435 million, a decrease of 3.0% compared to 5.604 million in September 2023[110] - Proactive services revenue in Precision Logistics grew 9% in Q3 2024 compared to Q3 2023[136] Gross Profit and Margins - Gross profit for Q3 2024 was 1,895thousand,adecreasefrom1,895 thousand, a decrease from 2,046 thousand in Q3 2023, with gross margin declining from 37% to 35%[137] - Gross profit for the nine months ended September 30, 2024, was 6,245thousand,anincreasefrom6,245 thousand, an increase from 5,153 thousand in the same period of 2023, with gross margin improving from 31% to 38%[146] - Precision Logistics gross profit for September 2024 was 1.777million,adecreaseof6.91.777 million, a decrease of 6.9% compared to 1.909 million in September 2023[110] - Authentication gross profit for September 2024 was 118,000,adecreaseof13.9118,000, a decrease of 13.9% compared to 137,000 in September 2023[110] - Total gross profit for September 2024 was 1.895million,adecreaseof7.41.895 million, a decrease of 7.4% compared to 2.046 million in September 2023[110] Net Loss and Impairments - Net loss for September 2024 was 2.424million,comparedtoanetlossof2.424 million, compared to a net loss of 930,000 in September 2023[110] - Consolidated net loss for Q3 2024 was 2,424thousand,comparedto2,424 thousand, compared to 930 thousand in Q3 2023[143] - The company recorded a goodwill impairment charge of 1,351thousandfortheAuthenticationsegmentduringthethreeandninemonthsendedSeptember30,2024[169]−Thecompanyrecordedanintangibleimpairmentchargeof1,351 thousand for the Authentication segment during the three and nine months ended September 30, 2024[169] - The company recorded an intangible impairment charge of 901 thousand for certain intangible assets during the three months ended September 30, 2024[171] - Goodwill impairment charge of 1,351thousandwasrecordedfortheAuthenticationsegmentduringthethreeandninemonthsendedSeptember30,2024,duetoatriggeringeventindicatingpotentialimpairment[60][62]−Intangibleassetimpairmentchargesof1,351 thousand was recorded for the Authentication segment during the three and nine months ended September 30, 2024, due to a triggering event indicating potential impairment[60][62] - Intangible asset impairment charges of 901 thousand and 914thousandwererecordedduringthethreeandninemonthsendedSeptember30,2024,respectively,duetorevisionsininternalforecasts[65]−Thecompanyimpairedcertainassetsby914 thousand were recorded during the three and nine months ended September 30, 2024, respectively, due to revisions in internal forecasts[65] - The company impaired certain assets by 914 thousand during the nine months ended September 30, 2024, bringing the gross carrying amount related to these assets to zero[66] Cash and Debt - As of September 30, 2024, the company held 2.61millionincashandcashequivalents,withnorestrictedcash,comparedto2.61 million in cash and cash equivalents, with no restricted cash, compared to 3.095 million in total cash and cash equivalents including 63,000inrestrictedcashasofDecember31,2023[22]−Thecompany′scashprovidedbyoperatingactivitieswas63,000 in restricted cash as of December 31, 2023[22] - The company's cash provided by operating activities was 302 thousand for the nine months ended September 30, 2024, compared to cash used by operating activities of 599thousandinthesameperiodof2023[155]−Thecompany′sshort−termdebtoutstandingundertheTermNotewas599 thousand in the same period of 2023[155] - The company's short-term debt outstanding under the Term Note was 0.5 million and total long-term debt outstanding under the Term Note was 0.5millionasofSeptember30,2024[93]−Thecompanyrepaid0.5 million as of September 30, 2024[93] - The company repaid 375 thousand towards the principal of the outstanding Term Note during the nine months ended September 30, 2024[93] - The company entered into a Convertible Note Purchase Agreement for 1,100thousandinAugust2023,with1,100 thousand in August 2023, with 450 thousand held by related parties as of September 30, 2024[158] - The PNC Facility includes a 1millionRLOCextendedtoSeptember30,2025,anda1 million RLOC extended to September 30, 2025, and a 2 million Term Note maturing in September 2026[159][160] - The company used 1.8millionofthe1.8 million of the 2.0 million proceeds from the Term Note to settle debt related to the PeriShip Global acquisition, including redeeming 61,000 shares of common stock[162] - The company entered into an interest rate swap agreement with a notional amount of 1,958thousand,fixingtheinterestrateonoutstandingdebtat7.6021,958 thousand, fixing the interest rate on outstanding debt at 7.602%[163] - The company's cash and cash equivalents are expected to fund operations for the next 12 months, with potential for additional debt or equity issuance to support growth[165] Stock and Share-Based Compensation - For the three and nine months ended September 30, 2024, there were approximately 8,256,000 anti-dilutive shares, including 2,305,000 unvested performance restricted stock units and 4,629,000 shares issuable upon exercise of warrants[40] - The company accounts for stock-based compensation using the Black-Scholes model for stock options and a lattice approach with Monte Carlo simulation for performance restricted stock units[42] - Stock-based compensation awards to non-employees are accounted for under ASU No. 2018-07, aligning with employee share-based payment accounting[43] - The company expensed 345 thousand related to restricted stock units for the three months ended September 30, 2024, and 678thousandfortheninemonthsendedSeptember30,2024[70]−Thecompanyissued1,750sharesofcommonstockuponvestingofrestrictedstockunitsand38,095sharesofcommonstockfromtreasurysharesduringtheninemonthsendedSeptember30,2024[70]−Thecompanyrepurchased1,000sharesofcommonstockfor678 thousand for the nine months ended September 30, 2024[70] - The company issued 1,750 shares of common stock upon vesting of restricted stock units and 38,095 shares of common stock from treasury shares during the nine months ended September 30, 2024[70] - The company repurchased 1,000 shares of common stock for 1 thousand under its share repurchase program during the nine months ended September 30, 2024[74] - The company had 270,367 shares held in treasury with a value of approximately 464thousandasofSeptember30,2024[73]−Thecompanyhad221,000stockoptionsoutstandingwithaweighted−averageexercisepriceof464 thousand as of September 30, 2024[73] - The company had 221,000 stock options outstanding with a weighted-average exercise price of 3.57 as of September 30, 2024[82] - Total unrecognized share-based compensation cost related to unvested restricted stock awards is 152thousandasofSeptember30,2024[84]−Unvestedtime−basedrestrictedstockunitsasofSeptember30,2024,totaled363,403shareswithanaverageweightedgrantdatefairvalueof152 thousand as of September 30, 2024[84] - Unvested time-based restricted stock units as of September 30, 2024, totaled 363,403 shares with an average weighted grant date fair value of 1.35[85] - Total unrecognized share-based compensation cost related to unvested time-based restricted stock units was 198thousand,expectedtoberecognizedoverlessthanoneyear[85]−Unvestedperformance−basedrestrictedstockunitsasofSeptember30,2024,totaled1,801,660shareswithaweightedaveragegrantdatefairvalueof198 thousand, expected to be recognized over less than one year[85] - Unvested performance-based restricted stock units as of September 30, 2024, totaled 1,801,660 shares with a weighted average grant date fair value of 1.35[87] - Total unrecognized share-based compensation cost related to unvested performance-based restricted stock units was 960thousand,expectedtoberecognizedover1.2years[88]−Thecompany′swarrantsasofSeptember30,2024,totaled4,628,586shareswithaweightedaverageexercisepriceof960 thousand, expected to be recognized over 1.2 years[88] - The company's warrants as of September 30, 2024, totaled 4,628,586 shares with a weighted average exercise price of 4.13 and a remaining contractual term of 1.5 years[89] - The company repurchased 1,000 shares of common stock for 1thousandundera1 thousand under a 0.5 million share repurchase program approved in December 2023[164] Intangible Assets and Goodwill - The company's intangible assets include patents, trademarks, customer relationships, and developed technology, with amortization periods ranging from 8 to 18 years[55][64] - The company's goodwill and intangible assets are tested for impairment annually or when triggering events occur, with significant judgment involved in determining fair value[58][59] - Intangible assets with finite lives totaled 7,730thousandasofSeptember30,2024,withanetcarryingamountof7,730 thousand as of September 30, 2024, with a net carrying amount of 5,523 thousand after amortization[66] - Amortization expense for intangible assets was 277thousandforthethreemonthsendedSeptember30,2024,and277 thousand for the three months ended September 30, 2024, and 817 thousand for the nine months ended September 30, 2024[66] - The company expects to record amortization expense of intangible assets totaling 5,523thousandoverthenext5yearsandthereafter[68]ForeignCurrencyandDerivatives−ForeigncurrencytransactiongainsforthethreeandninemonthsendedSeptember30,2024,were5,523 thousand over the next 5 years and thereafter[68] Foreign Currency and Derivatives - Foreign currency transaction gains for the three and nine months ended September 30, 2024, were 67,000 and 21,000respectively,comparedtolossesof21,000 respectively, compared to losses of 16,000 and 30,000forthesameperiodsin2023[24]−Thecompany′sfairvaluehierarchyshowsaderivativeasset(Level2)of30,000 for the same periods in 2023[24] - The company's fair value hierarchy shows a derivative asset (Level 2) of 11,000 and contingent consideration (Level 3) of (22,000)asofSeptember30,2024,comparedto22,000) as of September 30, 2024, compared to 4,000 and (924,000)respectivelyasofDecember31,2023[29]ContractsandCustomerConcentration−ThePrecisionLogisticssegmentconsistsofProactiveandPremiumservicelines,withpaymenttermsrangingfrom7−30daysforProactiveand30−45daysforPremiumservices[34]−RevenueinthePrecisionLogisticssegmentisrecognizeduponpackagedelivery,withtransactionfeesconsistingsolelyoffixedconsideration[35]−TheAuthenticationsegment′srevenueisrecognizeduponproductshipmentordelivery,withpaymenttermstypicallyrangingbetween30and90days[36]−Onecustomerrepresented14924,000) respectively as of December 31, 2023[29] Contracts and Customer Concentration - The Precision Logistics segment consists of Proactive and Premium service lines, with payment terms ranging from 7-30 days for Proactive and 30-45 days for Premium services[34] - Revenue in the Precision Logistics segment is recognized upon package delivery, with transaction fees consisting solely of fixed consideration[35] - The Authentication segment's revenue is recognized upon product shipment or delivery, with payment terms typically ranging between 30 and 90 days[36] - One customer represented 14% of revenues for the three months ended September 30, 2024, and one customer represented 23% of revenues for the same period in 2023[105] - Two customers made up 38% of accounts receivable as of September 30, 2024[105] Acquisitions and Contingent Consideration - The company acquired Trust Codes Global Limited on March 1, 2023, for a total purchase price of 2.113 million, including 363thousandincash,363 thousand in cash, 625 thousand in stock, and 1.125millionincontingentconsideration[52][54]−Thecompanyrecognized1.125 million in contingent consideration[52][54] - The company recognized 278 thousand in acquisition-related costs for the Trust Codes Global acquisition, included in General and administrative expenses for the nine months ended September 30, 2023[52] - Contingent consideration liabilities totaled 22thousandasofSeptember30,2024,withapaymentof22 thousand as of September 30, 2024, with a payment of 36 thousand made on May 15, 2024[57] - The company plans to close the Trust Codes Global business by the end of November 2024 unless a purchaser is found[111] Operating Leases and Other Expenses - The company's operating lease cost for the nine months ended September 30, 2024, was 145thousand,comparedto145 thousand, compared to 132 thousand for the same period in 2023[102] Partnerships and Strategic Alliances - The Precision Logistics segment has a direct partnership with a major global carrier company, providing detailed information and predictive analytics on shipments[129] - The Authentication segment has a contract with HP Indigo and a strategic partnership with INX, the third largest producer of inks in North America[130] Contract Assets and Liabilities - Contract assets increased by 6,464thousandduringtheninemonthsendedSeptember30,2024,withanendingbalanceof6,464 thousand during the nine months ended September 30, 2024, with an ending balance of 786 thousand[50]