VerifyMe - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue declined 23% year over year to $4.46M, driven by the previously disclosed discontinued premium-services contract and softer customer shipments; gross margin fell to 33% from 39%.
• EPS of ($0.05) beat consensus ($0.07) while revenue missed ($4.46M vs $5.09M); Adjusted EBITDA was $0.0M, below consensus EBITDA, reflecting tougher mix and premium customer loss. Values retrieved from S&P Global*.
• Management reiterated no formal 2025 guidance; they expect Q2 2025 comps to remain challenging, with OpEx modeled “relatively flat,” and anticipate easier comparisons in 2H (organically not positive).
• Balance sheet strengthened: cash $5.7M, no bank debt, remaining $0.8M convertible notes held by insiders/affiliates, supported by January warrant-inducement proceeds and debt retirement—providing strategic flexibility for tuck-in or transformative M&A.
• Potential stock catalysts: progress on e-commerce platform integrations (Shopify/WooCommerce), additional freight-carrier relationships, and strategic transaction updates; CFO transition announced, with incoming VP Finance/CFO-designate Jennifer Cola.

What Went Well and What Went Wrong

What Went Well

• Proactive services gross margin improved despite mixed macro; management underscored proactive services as best organic growth opportunity.
• Costs were aligned with lower revenue: Operating expenses fell 28% YoY to $2.08M, offsetting gross profit pressure.
• Balance sheet resilience: cash increased to $5.7M; term note retired; convertible notes reduced to $0.8M, with line-of-credit availability—supporting strategic optionality.
• Quote: “The annual cash flow from the operating business, coupled with our elevated cash level on the balance sheet, provides a strong backdrop to create shareholder value.” — CEO Adam Stedham.

What Went Wrong

• Premium services revenue declined 47% YoY on customer in-sourcing; overall revenue fell 23% YoY and gross margin compressed to 33% (from 39%).
• Authentication (codes) remains immaterial and was divested (Trust Codes) in Q4 2024; Q1 2025 authentication revenue was only $26K, limiting diversification.
• Near-term demand softness across e-commerce-tied customers; management guides to difficult Q2 comps and only easier (not positive) organic comps in 2H 2025.

Transcript

Operator (participant)

Good day and welcome to VerifyMe, First Quarter 2025 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, unattached to a phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Nancy Meyers, Chief Financial Officer. Please go ahead.

Nancy Meyers (CFO and EVP)

Good morning, everyone, and thank you for joining us today for our earnings call presentation. On the call today, I am joined by Adam Stedham, CEO and President, who will give an operations and strategic update. 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 answer to questions includes 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 Adam Stedham to discuss the company's strategy.

Adam H. Stedham (CEO, President, and Director)

Thank you, Nancy. During the first quarter of 2025, our revenue decreased approximately 23% versus the first quarter last year. This decline in revenue was due to discontinuing the Trust Codes operation, the customer insourcing in 2024, and then some overall softening of customer shipments. The decline was most pronounced in our premium services, which was down 47% versus the comparable quarter. As a reminder, these services have been down significantly in the last two quarters due to the previously announced insourcing of a large client by our large air freight partner. The negative comparison for this will continue into Q2 of 2025. However, we have reduced operating expenses by approximately 28% versus Q1 of 2024. We are managing our costs in alignment with these revenues. In addition, we have improved the gross margin of our proactive services within our precision logistics segment.

From an organic growth perspective, we believe this service line presents the best opportunity for growth, and we're pleased with the improvements in gross margin percentage. While we're not immune to the current macroeconomic environment, the positive cash flow from this operating business, coupled with our elevated cash level on the balance sheet, provides a strong backdrop to create shareholder value. At the end of the first quarter, we had a cash balance of $5.7 million. We have no bank debt, and we have a remaining convertible note of $0.8 million, but it's held by insiders and affiliates. At this point, I'd like to discuss our initiatives for creating value for our shareholders. We continue to pursue efforts to expand our revenues with directly contracted PeriShip customers. Our strategy in this area includes three elements.

The first element of the effort is optimizing our direct customer marketing and sales approach. We previously announced that we would pilot efforts for increased marketing as well as adding additional outside sales representatives. The marketing efforts are generating increased inbound lead activity, and we expect to refine our business development approach around leveraging marketing efforts to generate inbound sales leads, and then those will be handled by an inside sales team. The second element of our organic growth strategy is developing relationships with additional freight carriers and third-party logistics companies. As we've engaged with more customers that are contracting directly with PeriShip, these customers have expressed a desire to leverage PeriShip's value-added services in combination with logistics and freight carriers that are in addition to the single air freight partner that PeriShip currently leverages.

Therefore, we've begun conversations with additional air freight carriers and third-party logistics companies. We don't know where these conversations may lead, but we will keep you updated as the conversations progress. Now, the third element of our organic growth strategy is integrating with technology platforms that are related to e-commerce shopping carts and shipping management software applications. We have projects underway currently to integrate our technology platform with the e-commerce platforms of Shopify and WooCommerce, and we're evaluating other e-commerce and logistics-related software platforms that are leveraged by potential PeriShip customers. At this point, I'd like to shift the conversation from organic growth efforts to our strategic growth efforts. As I mentioned earlier, the company has $5.7 million of cash as of the end of the first quarter in 2025.

We do not anticipate requiring cash to support the annual operating and public company expenses of VerifyMe in 2025. We continue to have conversations with both transformative and tuck-in potential acquisitions. It is very difficult to predict the timing or probability of these types of activities. With that said, we continue to believe that the strength of our balance sheet, our anticipated annual cash flow from operations, and the executive team's experience with creating value through acquisitions positions the company to provide very meaningful shareholder returns from the current share price. At this point, I'll turn the call back over to Nancy so she can review the financial details of the first quarter.

Nancy Meyers (CFO and EVP)

Thank you, Adam. The first quarter revenue was $4.5 million versus the prior year of $5.8 million, a decrease of $1.3 million. The decrease is primarily due to the decreased demand across several of our proactive customers, as well as one customer's shift to their cold chain strategy. The discontinued contract with one customer in our premium services, as has already been disclosed, offset by an increase in remaining premium revenue. Gross profit decreased $0.8 million to $1.5 million in Q1 2025 versus $2.3 million in Q1 2024. As a percentage of revenue, gross margin was 33% in Q1 of 2025 versus 39% in Q1 2024. While the quarter did result in a decrease in year-over-year gross profit percentage, the loss of the one customer in the premium services was partially mitigated by improvements in proactive services.

Operating expenses were $2.1 million in Q1 of 2025 versus $2.9 million in Q1 of 2024. This decrease in operating expenses offset the decrease in gross margin in the quarter. In addition to the reduction in operating costs with the divestiture of Trust Codes, the company also implemented cost-cutting measures in precision logistics. Our net loss for the quarter was $0.6 million, or a loss of $0.05 per diluted share in both Q1 of 2025 and Q1 of 2024. Although our adjusted EBITDA was lower in Q1 2025 versus Q1 2024, the company continues to take steps to develop efficiencies. On the last slide is our balance sheet as of March 31st, 2025. Our cash as of March 31st was $5.7 million, an increase of $2.9 million from $2.8 million on December 31st, 2024.

As noted on our last call, in January, we entered into an inducement letter agreement, and approximately $1.5 million warrants were exercised for net proceeds of $4.3 million. In consideration for the inducement letter agreement, a new unregistered warrant to purchase up to approximately 1.5 million shares at a price of $4 were issued. With these proceeds, we retired all outstanding bank debt. In addition, we have converted approximately a third of our convertible notes, and the only remaining convertible notes are held by insiders and affiliated parties. As of March 31st, 2025, we had $0.8 million remaining on our convertible notes. There are no borrowings under our line of credit, and we have $1 million available to us. With that, I would like to turn the call back to Adam.

Adam H. Stedham (CEO, President, and Director)

Thank you, Nancy. At this point, I'd like to share that Nancy Meyers has decided she intends to retire from full-time work this summer. The entire board of directors, including myself, thank Nancy for all she's done for VerifyMe. We anticipate we will have a new Vice President of Finance on board next week. Jennifer Cola will fill this role, and we expect she will become CFO of VerifyMe after a transition period with Nancy. After her retirement from full-time work, we anticipate we will continue to have a part-time relationship with Nancy for a period of time. I've known both Nancy and Jennifer for many years, and the two of them have actually successfully worked together for many years. I'm confident that the company is very well positioned for a seamless transition and ongoing success.

Nancy Meyers (CFO and EVP)

Just to add on to that, after four years at VerifyMe, I have made the decision to retire. This journey has been truly rewarding, and I am proud of the progress we've made. As I prepare for this transition, I am committed to ensuring a seamless handover. I will be working closely with Adam and Jennifer to provide guidance and continuity. VerifyMe remains in a strong financial position, and I have full confidence in the team's ability to build on our progress. While I look forward to this next chapter, I am grateful for the support and collaboration I've experienced here. At this point, we will open the call for questions.

Operator (participant)

Thank you. To ask a question, you may press star then one on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Michael Petusky with Barrington Research. Please go ahead.

Michael Petusky (Managing Director and Senior Investment Analyst)

Hey, good morning, everyone.

Adam H. Stedham (CEO, President, and Director)

Hey, Michael, how are you?

Michael Petusky (Managing Director and Senior Investment Analyst)

Hey, great. Congratulations, Nancy, on the upcoming retirement. Yeah, a couple of questions. I guess, Adam, you sort of laid out organic growth opportunities and then touched a little bit upon the fact that your balance sheet positions you guys to potentially do something externally. I'm just curious, in terms of your capital allocation priorities, how do you sort of look at that as you move forward? I mean, is there one of those organic bullets that's the most important external? Could you just sort of talk about that a little bit?

Adam H. Stedham (CEO, President, and Director)

Absolutely. What we've seen from an organic perspective, if I talk about that a little bit, really any investments we're making are funded by the business, so they're not going to require capital per se from the cash we have on hand, although they would subtract from the cash generated from operations. We do think that there's minimal investment involved in them. If you look at where the company's prioritized a lot of its time, the company was founded—the company being PeriShip—was founded and built on a very critical relationship with the largest air freight company in the entire world. We continue to have a wonderful relationship with them. With that said, we can't ignore the fact that there are substantial opportunities in the marketplace that we've never been able to take advantage of because they would be contingent upon relationships with other providers.

Our major focus right now is around integrating with the e-commerce marketplace. Because many times when you check out in an e-commerce environment, you choose your shipping selection at that point of service. We will be a provided shipping option at point of service for many of these shippers and companies that are deciding to move forward with an e-commerce strategy. That is critical to interface there. If you are going to interface there, these companies already have priorities around whether they want to use this freight service or that freight service. We plan to have relationships with all of the freight services so that we are not pushing someone to one freight provider or another, but we will enable our customers to make whatever decision they want from a freight perspective and then leverage our service.

In the past, we've needed to have them choose us for freight and service. Going forward, we plan to be in a situation where they can leverage our service regardless of their freight decision. That's where we're investing heavily, to unlock that potential. Keep in mind, a large percentage of our customers already use multiple freight providers, and they're only able to leverage our service for part of that, and they would like to be able to leverage our service for more. That's why we're focused there, and we're investing on building that out. On the other side, on the strategic growth side, one of our challenges as a company is our size. We're a very small company to operate in the public equity environment. There are opportunities for tuck-in acquisitions that we think could be beneficial to shareholders and create value.

We are also aware that something more transformative could create potentially more value because it would help rectify the challenge of being a company our size in a public equity environment. Did that answer the question for you, Michael?

Michael Petusky (Managing Director and Senior Investment Analyst)

Just in terms of external growth, I mean, would you expect that any external growth you guys looked at would in any way be sort of connected to the logistics business, or could it be something relatively different or adjacent to logistics?

Adam H. Stedham (CEO, President, and Director)

Both. We have not excluded—we haven't excluded either. The reason we say that is because we think one of the major vehicles that we have for creating shareholder value over the long term is the combination of the cash on hand, the strength of the balance sheet, and then the ATM, assuming that we make successful acquisitions that generate shareholder value and the stock gets to a price point that enables the ATM to deliver more shareholder value. We understand that we have an opportunity to create value both in the logistics space and potentially in a space outside of logistics if the opportunity was strong enough. Now, probably the hurdle rate or the hurdle for something outside of logistics would be higher than something inside of logistics, but that's how we're viewing it.

Michael Petusky (Managing Director and Senior Investment Analyst)

Okay, great. Just a couple of these. May be more oriented towards Nancy, but they may not. I'll take the answers wherever I can get them. Do you have the—I know it's tiny—but do you have the revenue generation for the authentication business in the quarter, by any chance?

Nancy Meyers (CFO and EVP)

Yeah, that was $26 million.

Adam H. Stedham (CEO, President, and Director)

$2,000?

Nancy Meyers (CFO and EVP)

Yeah. I'm sorry, $26,000.

Michael Petusky (Managing Director and Senior Investment Analyst)

$26 million. I almost fell out of my chair. Okay.

Adam H. Stedham (CEO, President, and Director)

Yeah. Me too.

Michael Petusky (Managing Director and Senior Investment Analyst)

Thank you. Yeah. Okay. This is sort of related, and this will be the last question. I'll let other people get on. Just in terms of sort of modeling this business out through the rest of the year, I mean, should we look at sort of revenue comps somewhat similar in Q2 and maybe improving to something closer to down 10% in the second half or something to that effect? I'm just curious also about OpEx. Obviously, you guys have done a really good job very quickly, it seems like, in reducing that figure. I mean, is that a decent baseline figure to model going forward, or were there one-time aspects to that result? Thanks.

Adam H. Stedham (CEO, President, and Director)

In terms of revenue, we really aren't giving guidance this year. With that said, we will continue to have a very challenging comparison in Q2 because of the one customer we had previously announced last year. We will have a challenging comparison in Q2. After that, we think that the comparison becomes a little easier. A major part of what we're trying to do is we're trying to really focus on our proactive revenue. That's the direct customer revenue. As part of that, we anticipate the revenue subcontracted to the air freight carrier, our premium side, will continue to shrink as a percentage of our overall revenue. We expect that to happen. Our OpEx is in a good place.

One of the things that we believe that we've really unlocked is we understand the scalability of this business, and we believe that as revenues declined, unfortunately, it's fair enough, but as revenues declined, we were able to successfully scale costs associated with that. We think that we've implemented process improvements that as we scale revenue back up, the costs won't necessarily scale back up with it. I think I would model kind of expenses relatively flat with where they are right now, revenue to be a difficult comparison next quarter, and then hopefully start to be a more favorable comparison the second half of the year.

Michael Petusky (Managing Director and Senior Investment Analyst)

All right. Sorry. I have to just ask one final question based on that last sentence. I mean, you wouldn't expect positive revenue comps in the second half, would you?

Adam H. Stedham (CEO, President, and Director)

Not organically, no.

Michael Petusky (Managing Director and Senior Investment Analyst)

Okay. All right. Very good. Thanks, guys. Appreciate it.

Operator (participant)

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

Jack Vander Aarde (SVP and Senior Research Analyst)

Okay, great. Congrats on—hey, Adam, and congrats to Nancy on the upcoming retirement. Adam, good to see you guys balance your expenses pretty well in this current environment. I'll leave it at that. Adam, last quarter, you talked about how shipments from existing Precision Logistics customers were down about 6% for the full year. But you did add a bunch of new customers. I think new customers were up 6%. It was going to take some time probably to see the benefits from those new customer adds, especially when just shipments are down. Can you maybe just two things there? Can you maybe talk about your new customers added in the first quarter or the first half of this year so far? Also, do you expect to—how are those customers that were added last year? Do you still have a lot of them?

Are they ramping up? Are they kind of even keeled? Would love to just get a follow-up on those customer adds.

Adam H. Stedham (CEO, President, and Director)

I think that we have added new customers. The new customer adds in the first quarter have slowed down from last year. Overall, we're not experiencing a significant loss of customers, but we've seen an overall softening across our customer base. What we believe—and I'll just give you what we believe. If you look at the majority of our revenue in the proactive side, our direct customer revenue is tied to e-commerce. E-commerce is tied in many ways to consumer confidence. People have to buy products online to have them shipped. Many of our customers are seeing some level of softening. Even the new customers we added last year are seeing a softening from what they projected.

We are successfully adding customers, but at this point, the additional volume from the new customers is not offsetting the softening of the installed customer base.

Jack Vander Aarde (SVP and Senior Research Analyst)

Got it. That makes a lot of sense. Okay. I appreciate the color there. On the strategic front, I know there's only so much you can say, and I would love to know more, but there's a lot of moving parts behind the scenes for sure. Can you maybe just provide, though, the latest public update on the Inks business that you guys do have and that technology? If that's—just clarify, is that part of the strategic discussions? Anything you could share there would be helpful.

Adam H. Stedham (CEO, President, and Director)

We have had a conversation with a company that is in a different vertical inside of the ink world. We look at our current ink business, and we do think that if somehow we were able to make an acquisition that was synergistic with that to where you would have multiple ink products that were purchased by the same customer, that that could create value. We are very aware of that, and we are open to that approach. That particular conversation I mentioned has not resulted in anything meaningful going forward, but we are aware of that. With that said, I think the value that could be created synergistically by an acquisition in Precision Logistics is much higher if you look at the overwhelming majority of our revenue is in Precision Logistics.

We're looking at both, and we're looking at potential opportunities that exist outside of ink and e-counterfeit or Precision Logistics. We're really trying to keep a very, very open and patient mind towards what is the opportunity to best leverage the assets that we have available to create shareholder value from our current share price, which we think doesn't really represent the real value of the company at this point. We're trying to rectify that.

Jack Vander Aarde (SVP and Senior Research Analyst)

Understood. Understood. I appreciate the color there. That's helpful from what you can provide. I guess just looking around, how do you feel since you last talked to us back in February? I know there were some strategic probably changes, especially with FedEx and Amazon around that time that was announced. How do you feel today relative to where you were three months ago or so in terms of the level of visibility and just kind of overall comfort with where you're at? You have a lot more cash on the balance sheet, obviously, so you're in a good—seems like you're in a stronger financial position. Obviously, the macro has been challenging. How do you feel overall about the opportunity going forward for VerifyMe relative to a few months ago? Thanks.

Adam H. Stedham (CEO, President, and Director)

I feel good about the opportunity. I think whenever you're dealing with a company our size, if you're being completely realistic and objective, you have to look at things from two situations. What's the downside risk, and what's the upside opportunity? I feel extremely comfortable from a downside risk perspective. I think the strength of the balance sheet, the strength of the business that we have, it puts us in a very comfortable situation there. Now the key is how do we maximize the upside opportunity? What's happening, particularly in the logistics space, I think is actually favorable for us if we are able to figure out how to take advantage of it. You're seeing tremendous change. You're seeing significant changes in the two plus three. DHL made a major acquisition in the U.S. You're seeing changes with UPS. You're seeing changes with FedEx.

You're seeing changes with USPS. You're seeing changes with Amazon. All of these changes are creating a marketplace that's receptive to looking at new ideas and receptive to looking at approaches to meet the specific needs of their business. That's the vertical we fit in. We have a specific client that we meet a specific need for. Historically, at times, they've been unreceptive to a conversation to us, either because they wanted a different freight partner than we were aligned to, or they had entered into some other agreement, and they just weren't really open to looking at things in a different way.

What we're finding right now is, although there is some chaos in the marketplace by all of the changes happening, it's actually creating an environment where potential customers are very receptive to conversations that help them react to everything that is happening in the market. All in all, I feel very favorable to where we are. I feel extremely comfortable with any downside risk, and I'm very optimistic about the upside potential.

Jack Vander Aarde (SVP and Senior Research Analyst)

Okay. Fantastic. I appreciate the color, Adam. Thanks.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Adam Stedham for any closing remarks. Please go ahead.

Adam H. Stedham (CEO, President, and Director)

Thank you very much. Thanks, everyone, for joining. This is our first quarter. We look forward to having a call and updating you on the next call, hopefully, particularly on the strategic side. Over the next couple of quarters, we'll be able to give some updates on that. Once again, I would like to thank Nancy for all that she's done for us. Jen Cola is actually sitting in the room with us listening to this call, so I look forward to you all being able to hear from her on the next call. Thanks again, and look forward to our next call.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.