VerifyMe(VRME) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The third quarter revenue was $5.4 million, a decrease of$0.2 million from $5.6 million in the prior year [22] - Gross profit decreased by$0.2 million to $1.9 million in Q3 2024, with a gross margin of 35$2.4 million, or a loss of $0.23 per diluted share, while adjusted EBITDA remained flat year-over-year at$0.2 million [28] Business Line Data and Key Metrics Changes - Revenue in the Authentication segment was down slightly year-over-year, while in the Precision Logistics segment, premium revenue decreased by $0.5 million due to discontinued contracts, partially offset by a$0.4 million increase in proactive services revenue [22] - The Precision Logistics segment saw a 6% increase in proactive services customers year-to-date compared to 2023 [20] Market Data and Key Metrics Changes - The company anticipates that 2024 revenue will be slightly below 2023 revenue, primarily due to the loss of a premium customer and lack of growth in the Authentication segment [8][9] - The company has identified that the Authentication segment lacks the size and scope to compete effectively in the enterprise customer market [13] Company Strategy and Development Direction - The company plans to exit the code portion of the Authentication segment and focus on its ink product, which currently represents about 23% of Authentication revenue [16] - A renewed focus on the ink product and exploring other strategic opportunities is expected to provide better returns for shareholders [19] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment over the lack of revenue growth in 2024 and acknowledged the challenges faced in the Authentication segment [8][9] - The company remains optimistic about the Precision Logistics business and believes it can create value through organic and strategic initiatives [18] Other Important Information - The company recorded a $2.3 million goodwill and intangible asset impairment due to the analysis of its competitive positioning in the Authentication segment [25] - Cash as of September 30, 2024, was$2.6 million, a decrease from $3.1 million at the end of 2023 [29] Q&A Session Summary Question: Is the remaining Authentication business adjusted EBITDA positive or negative? - The remaining Authentication business is currently adjusted EBITDA negative, but there is hope to achieve adjusted EBITDA positive status in 2025 [34] Question: Does it make sense for the Authentication segment to exist given its small contribution to revenue? - Management acknowledged the question and indicated that they are evaluating the future of the segment, considering its low revenue contribution [36][37] Question: What is the outlook for the premium business after the FedEx decision? - Management reported growth in direct premium customers and stable activity in the pipeline, indicating a positive outlook for this aspect of the business [42] Question: What pieces of the Authentication business are still in play? - Currently, the ink component and related patents and technology are in play, with a focus on partnerships that could create value [47] Question: Will there be revenue from the Authentication segment in 2025? - Management expects some revenue from the Authentication segment in 2025, but it will not be material for the company as a whole [49] Question: What is the mix of proactive services revenue? - Approximately 80% of the revenue comes from proactive services, with 20% from premium services [50] Question: What are the expectations for gross margin in the upcoming year? - Management does not anticipate a year-over-year gross margin uplift due to the shift in revenue mix towards lower-margin proactive services [56]