Intrusion, Inc. (NASDAQ:INTZ) Q3 2022 Earnings Conference Call November 3, 2022 5:00 PM ET
Company Participants
Sam Cohen – Alpha Investor Relations
Anthony Scott – President, CEO & Director
Kimberly Pinson – CFO
Conference Call Participants
Zachary Cummins – B. Riley Securities
Scott Buck – H.C. Wainwright & Co.
Ed Woo – Ascendiant Capital
Porter Taylor – ARS Investment Partners
Aaron Warwick – ES Capital
Operator
We would like to welcome you to Intrusion Incorporated Third Quarter 2022 Earnings Conference Call and Webcast. [Operator Instructions]. Please note this conference is being recorded. An audio replay of the conference call will be available on the company’s website within a few hours after this call.
I would now like to turn the call over to Sam Cohen with Alpha Investor Relations.
Sam Cohen
Thank you and welcome. Joining me today are Tony Scott, Chief Executive Officer; and Kimberly Pinson, Chief Financial Officer. The call is being webcast and will be archived on the Investor Relations section of our website. Before I turn the call over to Tony, I’d like to remind everyone that statements made during this conference call relating to the company’s expected future performance, future business prospects, future events or plans may include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Please refer to our SEC filings for more information on the specific risk factors that could cause our actual results to differ materially from the projections described in today’s conference call. Any forward-looking statements that we make on this call are based upon information that we believe as of today and we undertake no obligation to update these statements as a result of new information or future events. In addition to U.S. GAAP reporting, we report certain financial measures that do not conform to generally accepted accounting principles. During the call, we may use non-GAAP measures if we believe it is useful to investors or if we believe it will help investors better understand our performance or business trends.
With that, let me now turn the call over to Tony for a few opening remarks.
Anthony Scott
Thank you, Sam. Good afternoon and thank you all for joining us today. I’d like to follow our usual cadence and provide you with some updates on our strategic priorities that are positioning Intrusion for long-term growth. These priorities include expanding and strengthening our product offerings, realigning our sales and marketing resources and focusing on channel enabled sales model as well as strengthening our strategic partnerships and improving our financial discipline. As we announced at the end of September, we’ve achieved the commercial release of our Shield Cloud and Endpoint products. The addition of the Cloud and Endpoint solutions improve the attractiveness of our advanced threat intelligence data set with products positioned to serve the growing hybrid and cloud world. Notably, as we released these new products, we identified some important patentable characteristics on our path to general availability.
Now that we have patent coverage in place, these product additions strengthen our strategic vision for Intrusion as we continue to serve the growing demands of customers seeking advanced and highly effective cybersecurity solutions globally. So first, let me talk about our Shield Cloud product. Shield Cloud extends the effectiveness of the Intrusion global threat engine and serves as a protective gateway between a customer’s virtual private cloud and the public Internet. It’s an important addition to our product line. Next let me talk about our INTRUSION Shield Endpoint solution. Shield Endpoint enables safe web browsing outside of the corporate enclave and data center allowing users to work remotely with confidence that authorized device connections are known, monitored and protected. With this product, users can safely view content on sites that would otherwise be blocked through our Shield Renderer, which transparently redirects users to a safe cloud-based browsing environment.
The indications of interest in the pipeline expansion as a result of our Shield Cloud and Endpoint products are highly encouraging. We received positive feedback from customers emphasizing the effectiveness of our solution and the overall value it brings to our dedicated users. Couple of data points to help you understand what I’m seeing. Our qualified leads have more than doubled, we’ve doubled our proof of concepts and proof of values, our quotes are 10x in terms of quotes that we have outstanding and all of those give me confidence in the future for these new products. Finally, we continue to invest in our Shield On-Prem appliance. Development of and enhancements to this product are continuing with new functionality and the ability to address increasingly higher network bandwidth over time. The demand remains strong for this hardware and we had several deals that didn’t close in this quarter, but are in our qualified pipeline.
So I continue to believe that the release of these new products will pave the way for INTRUSION Shield in all forms to become the largest source of revenue growth in the future. On the sales and marketing front, we’ve revamped our messaging around Shield with the launch of our new company website, new product branding and a new company logo as a part of this makeover effort. The revamping of the messaging around Shield and the launch of our new website will help us better communicate our unique value proposition and our competitive position in the marketplace. Last quarter we announced an agreement with Supermicro as our primary global supplier of hardware. I’m pleased to announce we’ve deepened our relationship with Supermicro by signing an agreement to also act as a reseller of Intrusion technology. This agreement will add Intrusion technology to the cybersecurity portfolio that Supermicro can sell to its customers globally.
I’m delighted with this arrangement and know that the combination of Supermicro and Intrusion will offer excellent value to our joint customers. Finally, as we announced in October, we are partnering with vTech Solutions, an IT services firm based in Washington, D.C. that provides end-to-end managed solutions for its customers. We see a large opportunity to work with vTech due to its experience working with state and local governments. vTech currently operates in 40 U.S. states and 3 additional countries, which will help expand the reach of our Shield products as they see greater penetration into those markets. We have positive momentum resulting from these new partnerships, which expands our reach as we provide INTRUSION Shield protection to a greater number of customers. Our discussions have continued with other major technology partners on the strategic partnerships front, but we have nothing more to announce at this particular time.
As I indicated last quarter, I was hoping to have something further to announce during the third quarter, but there’s been a bit of a slowdown in these discussions mainly due to the macroeconomic environment that we’re all currently experiencing. That said, no potential partner has left the discussion and we detect genuine enthusiasm for our IP and I remain optimistic that we will have something to announce on this front in due time and our strategic direction remains on course. Before wrapping up, let me also address our legacy consulting business. We were pleased to see this segment grow both sequentially and year-over-year. As you know, the federal government’s fiscal year started on October 1 and there currently is a continuing resolution or CR as it’s commonly known to temporarily extend the fiscal year 2022 spending levels.
As can be typical in these situations, we expect that the appropriators and congressional leaders will reengage in negotiations to finalize federal spending for fiscal 2023 following the November midterm elections. As we navigate the terrain of conducting federal government business, we are continuing to make investments and are exploring additional opportunities within the space in support of our growth strategy. Our team continues to be active in our engagement with industry leaders and chief information officers through participation in a couple of select cybersecurity conferences. As many of you know, I have a background with the federal government, which ultimately led to Intrusion’s participation in Cyberworld within the AUSA conference, the largest trade show for the U.S. military with over 60,000 attendees.
I personally participated as a keynote speaker this year where I emphasized the technological capabilities of Shield in protecting critical information assets, which was well received by those in attendance. During the quarter, we also participated in GRR Con, an information technology, security and hacking conference. This conference brings together a number of industry leaders to discuss pertinent changes to the cybersecurity industry and how CIOs are countering attacks. The participation at these 2 conferences allowed us to showcase our new and innovative products to a broader audience at significant industry events and we’re continuing to evaluate additional ways to expand the awareness of our INTRUSION Shield offer. At a macro level, there are both positives and negatives. What I continue to hear and confirm is that while forecast for technology and software spending are projected to be markedly lower, cybersecurity remains a top priority as we head into 2023.
For example in a recent Gartner study published in the Wall Street Journal, 66% of CIOs indicated that they plan to increase investment in cybersecurity. Long term the demand backdrop for our solutions continues to grow, specifically in the market sub-segments we serve. Cyber criminals and ransomware attacks do not pause because of a slowing economy and we continue to operate in a segment that will continue to see increased spending irrespective of what’s happening in the global market. While bad actors never cease, I’m excited about the ways in which our new and existing products can stand up to the most intelligent threats today and I remain steadfast in my belief that we are well on our way to sustainable Intrusion growth in this high growth exciting space. Before I turn the call over to Kim, I’d like to comment on our efforts to improve the company’s financial discipline and stability as we continue to pursue our strategic initiatives.
We further strengthened our balance sheet and overall financial flexibilities to meet our operational and strategic needs. In September, we completed a registered direct offering of approximately $6 million along our goal of $15 million to $20 million in the coming year. We remain confident that the capital markets remain open to us as we gain traction with our new Shield products. We plan to move forward with the same commitment to investing in our business in a responsible manner that’s commensurate with our prospects for profitable growth. Overall, I’m proud of how our teams executed during the quarter. I’m happy with the positive trajectory in our new business wins paired with the strong sales pipeline as more companies look to leverage our advanced threat hunting capabilities.
With that said, I’d now like to turn the call over to Kim for a detailed review of our third quarter financials. Kim?
Kimberly Pinson
Thanks, Tony. We are encouraged by the ongoing progress being made within our business as we continue to strengthen our balance sheet, bolster our financial flexibility and support our strategic growth initiatives to capture the growing customer demand for our sophisticated cybersecurity solutions. Revenues for the third quarter of 2022 were $2.2 million, an increase of $0.1 million or 6.5% sequentially and $0.4 million or 20.5% year-over-year. Third quarter revenues for our consulting business of $1.9 million increased 14.6% year-over-year and 7.9% sequentially due to an increased level of task orders during the quarter. This business has shown continued progress and we feel that we’ll continue to see a consistent level of growth as the federal government works its way through the backlog of task orders for contracts that have already been awarded and eventually reaches a new budget for fiscal 2023.
As you know, due to the CR, no new contracts can be awarded until either the CR ends or a new budget is approved. Third quarter results for our Shield On-Premise of $0.3 million was flat sequentially due to some minor churn we experienced in the business. During the quarter, we signed a number of new customers, which was offset by a nonrenewal of a contract. On a year-over-year basis, Shield third quarter revenues increased $0.1 million or 70.3%. We are still seeing strong demand for our Shield On-Prem solution with some opportunities that we did not close in Q3 expected to close in the fourth quarter. As Tony stated, we are pleased with the launch and progress of our 2 new Shield products and are encouraged by the prospects in the pipeline, particularly for the Endpoint solution that we expect to be a large contributor to revenues in the future. The gross profit margin was 54.6% for third quarter of 2022, which is significantly below the gross margin that has been reported in prior periods.
During the quarter, we identified amounts recorded in operating expense that should be included in cost of sales. We included this expense in cost of sales in Q3 and made a reclassification from operating expense to cost of sales in all prior periods for comparability. This reclassification resulted in a reduced gross margin of approximately 12% and 14% for each of the 3-month periods ended September 30, 2022 and 2021. When comparing our current quarter gross margin to the same period in 2021 after reclassification, our gross margin increased 6.2%. We anticipate our gross margin will continue to increase as Shield revenues make up a greater percentage of our sales. We are continuing to control our cost structure while also making prudent investments in our long-term profitable growth. Third quarter operating expenses of $5 million were down $2 million or 28% year-over-year.
Looking closer at our operating expenses. Sales and marketing expenses of $1.7 million were down $1.8 million or 52% year-over-year as a result of the actions taken over the past year to realign our sales organization and implement cost savings measures. Research and development totaled $1.5 million, a decrease of $0.4 million from the prior year period. As you may recall, we began capitalizing internally developed software costs in the second quarter of this year. When adjusted for amounts capitalized, the R&D expense would be $2 million, an increase of $0.1 million or 5% year-over-year. General and administrative expenses of $1.9 million were up $0.3 million or 16% year-over-year mainly due to legal costs that are nonrecurring in nature. During the quarter, we finalized the calculation of our employee tax credit related to 2020 and 2021 and we recognized $2 million in other income net of expenses.
Net loss for the third quarter was $2.9 million or $0.15 per share compared to a net loss of $6.1 million or $0.34 per share for the third quarter of 2021. Our losses have improved significantly compared to the same period of the prior year, which reflects our responsible fiscal management as we grow revenues and manage our costs. Turning to the balance sheet. As of September 30, 2022 we had cash and cash equivalents of $6.9 million, up from $4.1 million on December 31, 2021. On September 12, we entered into a securities purchase agreement to issue and sell shares in a registered direct offering of common stock and warrants totaling $5.9 million. We closed on 959,057 shares and warrants or $4 million in the September quarter. The additional financing allows us to prudently invest in our growing suite of INTRUSION Shield products and address our capital allocation priorities while driving sustainable shareholder value.
With that financial overview, I’d like to turn the call back over to Tony for a few closing comments. Tony?
Anthony Scott
Thanks, Kim. To conclude, we’re continuing to execute on our strategic initiatives through the launch of our new products and the partnerships that we’ve announced. We’re pleased with our performance and are optimistic for what is yet to come. I believe that the actions that we are taking today set us up well to end the year on a good note and move into 2023 with strong momentum. I look forward to sharing the next steps in our journey with all of you and again thank our investors for your continued support as we execute on our strategy.
This concludes our prepared remarks. And I’ll now turn the call over to the operator for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. Our first question will come from the line of Zach Cummins with B. Riley Securities.
Zachary Cummins
Just starting off, I mean with Shield revenue I think essentially flat quarter-over-quarter. It sounds like you had a nonrenewal with a customer. Can you talk about some of the dynamics that went on there and why that customer decided to not continue forward with your On-Premise product?
Anthony Scott
Yes. This is Tony. So the circumstance there was a deal that was signed before I actually got there. The customer had turned on Shield and it was an educational institution. On the first day of school when all the students logged in, our box crashed and they got kind of jittery and basically refused to turn it back on again. Again all of this happened well before I got to Intrusion. So it was one of those things that when I got there, we spent the first couple of months on the hardware stabilizing our software and making sure things like that wouldn’t happen again. And we just couldn’t resurrect that 1 customer out of the trashbin, if you will. So I felt real bad about it, but I do understand in that particular case why a customer would feel burned and would not want to renew. So that’s the circumstance. I wish it were otherwise, but it is what it is.
Zachary Cummins
Understood. That’s helpful. And Kim, I think you mentioned around kind of the lower gross margin that we saw in this quarter. I mean, any way you can give us a sense of what sort of costs are being moved into that cost of revenue line versus what was classified as operating expenses before?
Kimberly Pinson
Yes, I can. In reviewing the cost of sales and it was primarily as we were getting ready for the planning phase of the remainder of this year and 2023, I noticed some contractor expense. It’s really some direct labor expense associated with a consultant contract that previously had been included in operating expense and should have been fully recorded in cost of sales. That is a long-term contract. The billing on that contract was consistent. So we went back and did a correction of an immaterial error and restated the cost of sales for all periods presented. And it did not have an impact on our operating income, gross margin or earnings per share. It was clearly a reclassification.
Zachary Cummins
Understood. That’s helpful. And Tony, final question for me is really around the launch of your new Cloud and Endpoint solutions. Just to make sure I was getting all the metrics right. Would you mind repeating kind of some of the pipeline metrics that you shared during the conference call script? And I’m assuming all of the existing channel partners you have are likely ready to go right now to sell these new solutions?
Anthony Scott
Yes. So we’ve been working for the last several months getting our partners and resellers and so on ready for this launch, getting our collateral material together and all the things that you would expect at that particular time. And so the metrics I was talking about has to do with our proof of values, proof of concepts and things like that. So let me re-share those. So one of the things that we track in our sales force instance is qualified leads. So these are leads that we know there’s a budget, we understand what the demand is, there’s been at least an initial conversation and a desire to learn more about our product and so on. It’s not just somebody clicking on the website or some sort of casual interest. It’s a real sales opportunity for us. And we have a funnel process that we go through to eventually determine that it’s a qualified lead that bears our putting time into and also our channel partners putting time into.
In most cases, they’ve already put some considerable time into it. So those have doubled. We’ve also doubled the proof of concept and proof of value. So once we get through the initial sales pipeline, then we actually get our hardware or software as the case may be installed at the customer site and we begin a defined period of time where the customer experiences what our product can do in order to make a determination whether they ultimately want to buy it or not. So those have doubled. And then probably the other measure that I think is important and we talked about on the call is quotes outstanding. So these are cases where in dialog with the customer, we have a specific request to provide a quote and our goal is to turn those quotes into actual sales. So those are all leading indicators of trajectory in terms of where the company is going and I’m pleased to see those numbers kind of show up in Q3.
Zachary Cummins
Understood. That was extremely helpful. Well, congrats on the continued progress here in Q3 and then best of luck with the rest of the year.
Operator
Your next question will come from the line of Scott Buck with H.C. Wainright.
Scott Buck
My first question, I may have missed it, Tony, at the front end of the call, but what part of the quarter did you guys go live with Endpoint and Cloud?
Anthony Scott
Yes. It was near the end of the quarter. What happened there is, we were ready to go, and we realized there was some additional patent coverage that we really wanted to have and needed to have before we went GA with these products. So we had a slight delay of a couple of weeks while we got that patent coverage in place. The good news is it allowed us to do some additional feature development that probably wouldn’t have gotten done otherwise. So I’d call it a good delay for 2 reasons, but it was a little bit later in the quarter than I had originally been hoping for, but we did get it out at the end of the quarter, hope for them.
Scott Buck
Was there any revenue contribution from these 2 products during the quarter?
Anthony Scott
No, because neither were GA at the end of the very end of the quarter, so.
Scott Buck
Okay. Perfect. My next question on the vTech partnership and really just your channel partnerships in general. Can you remind us what the economics look like there? I assume maybe a little bit lower revenue, but higher gross margin versus what would occur under our direct sales relationship?
Anthony Scott
Right. So we have agreements in place with all of our resellers. And most of them are commission kind of basis or a discount basis, but they sell our products, they build the customer, we build them is kind of the nature of the relationship. In most cases, they’ll provide first-line support. They’ll have technical teams that help with the install, answer any Tier 1, helped us kind of calls and so on. So it’s a good alternative in my view to building up a large team internally that would be needed if we were going to do all of that directly ourselves.
Scott Buck
Sure. And how many channel partners do you guys have in place currently? And what’s the pipeline look like for adding additional capacity?
Anthony Scott
I don’t know the exact number off the top of my head. I can get back to you with that. But we’re focused on around 8 to 10 at this particular point or, I’ll say, more active than the others and it’s probably double that in total that I’d say are active partners, but we’re really focused on the top 8 or so that are really delivering leads and really engaging in direct customers. And that’s apart from the managed service providers and managed security service providers that are their own sort of activity.
Scott Buck
Right. Okay. And they’re all educated up on the product, so there’s not a 6-month lag in terms of when they could actually start selling?
Anthony Scott
Yes, they are. We’ll obviously continue to develop additional material. And one of the things that happens when you get a product into the marketplace is you try to anticipate ahead of time with all of the questions and all of the frequently asked concerns or whatever it might be. But there’s no substitute for getting out in the marketplace and getting feedback and hearing what the real customers have to say. So, there will be a period here where that feedback will be critically important as we try to do a better job.
Scott Buck
Sure. All right. Just one more for me. You guys did a nice job bringing down OpEx over the course of the last year. What’s the expectation going forward in terms of — are there some additional areas that you can, I don’t know, be more disciplined around if the environment gets a little bit worse? Or do you need to really start to add here to support the growth in the top line?
Anthony Scott
Well, I’ll let Kim comment, but our main goal is to improve sales. We think now we have the opportunity with the 2 new products in a pretty complete offering to really spur sales. And then our objective is to grow internal resources at a slower rate than sales. So I think Kim mentioned improved margins in her conversation. But our goal for the next 2 quarters, in particular, and I think forever, will be grow sales and then grow cost at a slower rate.
Kimberly Pinson
And then just to add on to what Tony said. I think the go-to-market structure that we have achieved will allow us to grow our expenses in relation and have to make those significant investments as we grow our clients. So we do plan on responsible fiscal management and really not getting ahead of ourselves in terms of expense spend, and we’ll continue to spend responsibly, we’ll continue to invest in new features and functionality and new products, but we will moderate that with our product adoption as in at the rate at which our top line growth. And on that same basis, to a lower expenses, we will continue to invest in sales and marketing, but due to the go-to-market structure, it will be at a lesser extent than what otherwise we would have seen once the new products launched.
Scott Buck
Okay. Great. I appreciate the time guys.
Operator
Your next question comes from the line of Ed Woo with Ascendiant Capital.
Ed Woo
Congratulations on the product releases. My question is, you mentioned about the weakening macro environment, challenges of IT budget, at the same time, cybersecurity remains a priority. Do you anticipate longer sales cycles and/or maybe pricing pressures going forward?
Anthony Scott
Yes. I think that’s a natural sort of result given the macroeconomic climate we’re in. But there’s a couple of other things I would mention here, too. I hear a couple of themes from CIOs and CCIOs when we talk to them. One of them is that they’re [indiscernible], having 52 vendors in the cybersecurity space, and they’re sort of looking for better coverage from a fewer number of vendors than what they have today. So it tells me that there’s likely to be some industry consolidation or things like that as the pressure comes to — from the customer base.
But I also hear and I think this helps Intrusion, they’re looking at solutions that are focused on the coming threats and the threats that are — that seem to be growing today versus yesterday’s problems. And I think our forward facing cybersecurity solutions play well in that dynamic, so. And as we all know, cybersecurity attacks are still successful. There was news this week of yet another one. So a big company getting attacked. So I think those show that we’re not winning the war yet against some of these adversaries.
Ed Woo
Well, I wish you guys good luck.
Operator
Your next question comes from the line of Aaron Warwick with Breakout Investors.
Aaron Warwick
I’m sorry, I had a problem, technical difficulty getting on the call. And I got on at the very end of when you were talking about strategic partnerships and some delays. Could you cover that again for me real quickly?
Anthony Scott
Sure. Well, I think the bottom line of this is, I’ve hoped to announce a major strategic partnership by the end of the third quarter. And in my comments, I said I think the macroeconomic conditions are creating an environment where those conversations have slowed down a little bit. Just to add a little color. One of the partners we were talking to had a staff reduction of almost 50% in the team that was talking with us. So I think it means that in major tech companies, and you’re seeing this in the market broadly, most of them are not having a great time right now, and that puts a lot of pressure on internal teams and I think also limits the kinds of relationships that they’re willing to engage them. So I’m seeing that firsthand.
That said, nobody has said, go away, we don’t want to talk to you anymore and our conversations will continue. So we will announce something in due time when it’s when it’s done. I’m still pursuing those with vigor. And I’m still hopeful that we’ll be able to get one done. The timing is just a little more uncertain and I would say I felt it was going to be 3 or 4 months ago.
Aaron Warwick
Okay. Well, it was good on the positive note, I guess, it’s good to hear about the deepening of the relationship with Super Micro. Could you talk about that a little bit more? I mean, I just — specifically, I guess, from the perspective, I know they do a lot of white box offerings. I know they have an international presence. And what does that — what has kind of opened up with you guys, I guess, in terms of opportunities?
Anthony Scott
Super Micro builds a lot of platforms. And there’s a platform for lot of open source solutions. They’ve got great penetration in the small and medium market. And increasingly, as there’s cost pressure on IT budgets and so on, they’re going to be a great alternative to some of the higher priced solutions that are there in the market. And so our ability to partner with them and be a part of the portfolio they can offer their customers, I think is good for us, and I think good for them as well. And they wanted to broaden their offerings, and I think we’re a very good partner for them in that respect.
Aaron Warwick
Good. Final one for me, I guess, would just be as it relates to more on the government side, have you guys been looking into being added to the GSA schedule or being added to things like Department of Homeland Security in terms of the offerings that they’re able to accept?
Anthony Scott
Yes. And we’ll go on initially as a sub to other offerings, not directly, but we are working on also being on directly as well. But the most immediate occurrence will be as a sub to other offerings.
Aaron Warwick
And is that on like for both the departments or just the GSA or what’s –?
Anthony Scott
GSA, and DoD are our 3 primary targets. Excellent.
Operator
Our final question will come from the line of Ross Taylor with ARS Investment Partners.
Porter Taylor
Congratulations on getting the cash burn down. Tony, real quick, just to pick up on an answer you gave to Aaron. You said you’d be a sub to other offerings. That sounds very much like you already know who those other offerings are, and you’re in the process of getting approval or getting put into those offerings? Is that a correct way to read that?
Anthony Scott
That is correct, yes.
Porter Taylor
So what needs to be done to cross that bridge? It sounds like that could be a fairly — that could either be a forever or it could be a very quick short bridge to cross. Where — how long do you think it takes before you get to –?
Anthony Scott
Yes, the normal process would be a proposal goes in and the prime time director lists, the subs that they want to use or could participate in that particular contract. And once it’s awarded, then the prime becomes responsible for the relationship. So as we mentioned, there’s a CR right now, so we’re not expecting any new contracts until after the CRs get ended and normal funding occurs. But as in every year, where there’s been CRs, there ends up building a lot of demand behind the dam, if you will. And as soon as the CR ends, then contracts start to flow. So we hope to be on a number of those new contracts when the dam finally gets released.
Porter Taylor
So I read that as you’re saying that those — since they’re in that process and are being held up by the CR, which I guess we’ve had 15 at the mid last ’20 budget years.
Anthony Scott
Yes, correct.
Porter Taylor
You already have the prime that has put the contracts in and you’ve already basically worked with the prime, the prime is intending to include you in that. Is that a correct way to think about that?
Anthony Scott
Yes, we have some, and we’re working on a whole heck of a bunch more. So, is the way I would characterize that. We’re in a handful today, and I want to be in multiple handfuls within the next year.
Porter Taylor
Okay. Do we know — have you announced those primes that you’re working with? Are they already customers? Or are they people who at this point in time, we do not know are going to be working with you?
Anthony Scott
We’ve not made any announcements in that regard at this point now.
Porter Taylor
Okay. So you basically — and what they’re going for is specific contracts. So these — when they get — when we get out of the CR and these get approved, this could be a fairly significant revenue ramp and quite honestly, proof point, although I think it’s becoming less of a concern for many investors as to whether or not the shield works, it will be a massive proof point as you get these contracts out. So it sounds like you’ve already won those primes over on the value shield. Would that be correct?
Anthony Scott
I’d say that’s true. I think the one caveat I would say is that in most of these cases, there’s competitive bidding going on. So if our prime, the one we selected doesn’t win the contract, and neither do we. And so we’ll see over time how many of these end up being winning contracts versus ones that are not winning. And that’s always a lot challenging aspect. But our goal is to have more of that than we’ve historically had, and I think we’re well positioned to do that.
Porter Taylor
Talk about the competitive landscape for people doing what you do. How — in the past, it was said this is a fairly unique thing. Does it still remain — is there anyone else who is offering a product like what you’re offering? Are the people bidding for these contracts using a different — a totally different approach to provide — you’ve said before that basically Shield is almost prime [indiscernible] a 0-day defense Cloud defense that’s very unique. Is that the case? So other people are offering what you would consider an inferior defense?
Anthony Scott
Well, I think it’s a question of 2 things. One is there is nobody else like us that we can find that has this sort of reputation-based approach and the really large database that we have. There’s nobody that comes close, we think we’re at least 10x bigger than the next closest guys. So we think that offers a real strong advantage. There are others who claim that their solutions are effective because they use things and these are all great buzzwords in the industry today, machine learning, AI, behavior-based analytics, the list kind of goes on and on and on.
We still think our solution is more effective than those kinds of approaches. And the fact that we don’t rely on strictly on signatures or fingerprints or some known set of behavior that we’ve seen before is, I think, unique in the marketplace. Time will tell. Right now, we’re still a little known company. And our biggest effort is to speak with a louder voice and get more exposure so that people can learn what we do and try us out and provide additional references and things like that.
But we keep looking around to try to see if there’s anybody doing what we do. And while there are some companies that are starting to gather the kind of data that we have, they can’t get the 30-year history that we already have. It’s just not — it’s not possible. So we still think there’s unique value there and one that gives us a leg up.
Porter Taylor
Put a different way, by the time they have a 30-year history, you’ll have a 60-year. One of the ways that an investor like me, judges companies like you, where it’s hard to truly understand the nature of the dynamics of the product is by finding who you ally with. We were early into Zscaler because of the relationship they have with Microsoft. Well, when we know the names of your primes, we know the names of your strategic partners, will we be impressed by them?
Anthony Scott
Well, impressed, I hope so, but you’ll know the names for sure.
Porter Taylor
So that will be significant players in the space.
Anthony Scott
That’s our goal, yes.
Porter Taylor
Okay. And what kind of work do those guys do — those firms do to proof out your product?
Anthony Scott
Well, there — we picked ones in — each in different spaces. So some have — one has products that we would integrate with. One has services that we would integrate with as an example. So we’re — at the moment, we were not talking to multiple versions of each of those. We picked a leading product company and a leading services company and thought that was our best shot after looking at gaps that they have in their offerings. I will say that if things stay slow, I will probably broaden our conversation to more companies than we’re currently talking to.
Porter Taylor
It would seem that if you do have this truly unique product, it would make a great deal of sense to effectively kind of create — you’re going to play with one player in each space, it would make sense to actually create a little bit of a race or a hustle for it because if people start to recognize that, this is what it appears to be, there should be a landslide pushing towards it. I just want to say I think that I could talk at greater length at 6:00. I think people are certainly tired of having me speak. They probably aren’t tired of hearing you.
Anthony Scott
Yes. My only comment, Ross, would be, I chose one because of the impact on resources. These conversations take people, engineers, blah blah, and I didn’t want to dilute our resources broadly. I chose a more focused approach, and we’ll see what happens as time marches on here, but that was a deliberate choice initially.
Porter Taylor
But by the same measure, the people who are partnering you with these potential deals with the government have also committed resources and decided after putting those resources that they want to include you in their package. So they’re willing to bet their reputations on yours. Actually, quite a lot of years ago, I made a lot of money on a company called Albany International, which developed a new way to make fan blades for jet engine when Boeing said that they were going to use the [indiscernible] engine, people thought that was crazy, but they actually — there are leading-edge technologies, the companies who never think could happen.
Anthony Scott
That’s right. That’s exactly right.
Porter Taylor
Well, congratulations, I heard there’s a lot more going on here than you’re letting on. It’s pretty exciting, I think, just picking up some of the stuff that some of the following — going through some of these doors aren’t open. So thank you very much. I’ll talk to you later.
Operator
And with that, I’ll turn the conference back over to management for any closing remarks.
Anthony Scott
Well, again, I would just like to say thank you to our investors and analysts and all those who are paying attention to us. For me, it’s coming up on 1-year anniversary of joining the company, and I’m quite proud of the team. I’m quite proud of the work that we’ve been able to do this year. And I’m even more excited about what the next year will bring. So I appreciate your going on the journey with us. Stay tuned, we’ll have, I think, more exciting news for you in the coming weeks and months. So thank you very much.
Operator
Ladies and gentlemen, that will conclude today’s call. Thank you all for joining. You may now disconnect.
Be the first to comment