VerifyMe, Inc. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Pivot to Growth: Focused on moving from transformation to growth despite slower marketplace adoption of authentication/traceability services and partial shipping volume headwinds.
• Segment Updates: For Precision Logistics, shipment volumes were down 9% year-over-year but new customers in the proactive service line were up 7% year-over-year. For Authentication, there was significant progress with the Amazon relationship, and APAC business and other strategic relationships showed positive trends.
• Balance Sheet and Strategy: Had a healthy balance sheet, a sales strategy taking hold, and key relationships being formalized.

Segment Performance

• Precision Logistics: Q2 2024 revenue was above Q2 2023, but revenue growth wasn't as expected. H1 2024 shipments with existing customers were down 9% year-over-year, but proactive service line new customers increased by 7% year-over-year.
• Authentication: Significant progress with Amazon relationship, though process took longer. APAC business, other strategic relationships, regulatory controls, and ink sales showed positive trends. H2 and full year 2024 authentication revenues were expected to exceed 2023.
• Financials: Q2 2024 revenue was $5.4 million, effectively flat with the prior year's $5.3 million. Gross profit increased to $2.1 million (+$0.5 million or 32%) with a gross margin of 39% compared to 30% in 2023. Net loss improved to $0.3 million from $9 million in the prior year, and adjusted EBITDA was $0.2 million, an increase of $0.6 million.

Guidance

• Revenue: 2024 revenue was now roughly in line with 2023, but gross profit, gross margin percentage, and adjusted EBITDA were expected to exceed 2023.
• Q3 Adjusted EBITDA: Anticipated to be slightly negative, but H2 and full year 2024 adjusted EBITDA were expected to be positive.
• 2025 Confidence: Confident in 2025 as unexpected items affecting 2024 were unlikely to repeat, and the company expected growth in the long term.

Risks

• Marketplace Adoption: Slower than desired adoption of authentication and traceability services.
• Regulatory Changes: Significant changes in the regulatory environment could impact the authentication business.
• FedEx Subcontracting: FedEx's internal AI solution was affecting long-term subcontracting, which impacted Precision Logistics growth.

Question and Answer

Q: Comments on GS1 conference takeaways and 2025 targets A: Adam noted slower adoption due to regulatory and election year factors, but was confident in the 5-year targets assuming the regulatory environment stayed on track.

Q: Shipment volumes in 1H 2024 A: Existing customer shipments were down 9% year-over-year, while new customers were up 7% year-over-year.

Q: FedEx Premium business impact and 2025 modeling A: FedEx subcontracting impact, with remaining contracts expected to affect 2026, but direct premium business was growing on a percentage basis.

Q: Amazon relationship competitive advantage and margins A: Believed to be the only one working on Amazon integration at the time, and margins were expected to be in line with authentication overall.