Good afternoon. My name is Karol and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4, 2014 Financial Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mike Paxton, Vice President and Chief Financial Officer, you may begin your conference.

All right, thanks. Welcome to this afternoon's call to review Intrusion's fourth quarter and yearend 2014 financial results and discuss our business. On the call with me today will be Ward Paxton, Chairman, Co-Founder, President and CEO; and Joe Head, Vice President and Co-Founder of the Company. Ward will give a business update. I will give the financial results and Joe will give an update on ongoing projects. We'll be glad to answer any questions after our prepared remarks. We distributed the earnings release at approximately 3:05 p.m. today. A replay of today's call will be available at approximately 6:30 p.m. tonight for one-week period. The replay conference call number is 855-859-2056. At the replay prompt, conference ID number 83035383. In addition, a live and archived audio webcast of the call is available on our website, intrusion.com. Please be reminded that during this call, including the question-and-answer session, we may make forward-looking statements with respect to financial results, business strategies, industry trends, and certain other matters. Forward-looking statements are based on management’s current expectations and are subject to risk and uncertainties. We may be discussing our current outlook for the current quarter and fiscal year 2014. These discussions are based on our own internal projections. The projections could change prior to the end of the period discussed. Actual results may differ substantially from projections. Information in this conference call related to financial results, projections, and other forward-looking statements is based on current expectations, and we expressly disclaimed any responsibility to update forward-looking statements. Many factors could cause our projections not to be achieved, including the uncertainties and lack of visibility caused current economic and market conditions and other factors which can be found in our most recent filings with the SEC, including our most recent Annual Report on Form 10-K filed March 2014. I turn the call over to, Ward Paxton.

Thank you, Mike. Welcome to Intrusion’s fourth quarter 2014 conference call. It’s good to be with you today to discuss our progress and results. As most of you know we have two major product families Savant and TraceCop. Savant is our newer product family and is focused in the new security market space which is called advance persistent threat or APT. Our second product family is us called TraceCop. With TraceCop we collect and analyze open source data from the Internet and use this data to assist us and locating the bad guys. Our R&D activities at Intrusion this past year have been focused on expanding our capabilities of both Savant and TraceCop. Our sales and marketing efforts have been and continue to focused on developing current and new resale partners. You’ll hear more about this later. Now Mike Paxton our Chief Financial Officer will review our fourth quarter financial results that we released a little over an hour ago. Mike?

Okay. Fourth quarter 2014 financial highlights from the press release, revenue for the fourth quarter was $1.8 million compared to the same for the fourth quarter 2013 and $2 million for Q3 2014. Sales were below expectations due to delays in Savant sales this is not unusual due to the nature of the sale. Gross profit margin was at 65% in the fourth quarter compared to 67% in fourth quarter of last year and 65% for the third quarter of 2014. Gross profit margin can be greatly affected by sales product mix of deliverables in the quarter; in general accounts for 65% but it will be directly attributable to the mix of product shift. Intrusion’s fourth quarter 2014 operating expenses were $1.3 million compared to $1 million for the comparable quarter in 2013 and $1.2 million for the third quarter of 2013. Net loss for the fourth quarter was $0.1 million compared to a net income of $0.2 million for the fourth quarter 2013 net income of $1 million or $0.1 million for the third quarter 2014. Now let’s take a look at yearly numbers. Revenue for the year 2014 was $7.2 million compared to $7.8 million in 2013. The gross profit margin improved to 65% compared to 64% in 2013. For the year 2014 operating expenses were $4.9 million compared to $4.2 million in 2013. For the year 2014, a net loss of $0.3 million compared to a net income of $0.6 million for 2013. We feel short of ourselves goes for the year but we did manage to limit our loss roughly, approximately $300,000. Commercial Savant sale is our future and we are expanding our sales efforts. Thank you. I’ll now back to Ward.

Thank you Mike. The fourth quarter is typically our weakest quarter and the fourth quarter of 2014 lived up to that historical result. Now, Joe Head my partner, co-founder and Senior Vice President will discuss our products, markets and sales activities. Joe?

Our traditional base business Savant and TraceCop has provided us stable base for business for the past several years, hasn’t grown or shrunk but has served us well as a stable base while we pursue new opportunities for growth. This past year we’ve made a few adjustments to improve opportunities or provide opportunities for revenue growth both in products and personnel. In our traditional TraceCop we’ve identified new opportunities and have dedicated account managers to support these legacy customers. Two of our new customers we booked in the third quarter are slated for renewal in the first quarter, short time after their initial contracts run out and show that there are new opportunities in this area. We’ve got another sales rep to pursue TraceCop business and another vertical in 2015 and have forecasted new business there. I’ve spent much of my time over the past years in this space making sure all customers stayed happy and helping the guarantee renewals to keep the company’s base stable until Savant can being making contribution to our totals. Our project support team is stable and strong, they don't need me to keep existing customers happy and I am also confident that they will grow the base above the 7 million per year we have seen over the past few years. This business isn't going away or becoming obsolete I expect it to remain stable and even grow a measurable amount in 2015. In many successful transitions there is a desperate need to replace and old dying business with a new unproven one, for us that is not the case. Our base business has allowed us to invest in the new Savant business and will continue to contribute to us for years to come. But Savant is ready for a market that needs it.…

Thanks Joe. The opportunities are growing and our product capabilities continue to broaden. Our expectations for both product families are increasing. We're dedicated to grow both businesses. You may have noticed that announcement earlier today that we've brought on a new Director, Dale Booth, has joined our Board of Directors and will serve their until the next stockholders meeting in the spring where he will be out for election at that time. In conclusions the whole Intrusion team is excited about the potential of our business and is working hard to achieve our expected results. We thank you for joining our call today and for your interest in Intrusion. Mike?

[Operator Instructions] Your first question comes from the line of Walter Schenker, your line is open.

Okay, I'll trying keep it shorter, two quarters ago Joe, there was a sense in listening to the call and I have the transcripts that TraceCop instead of being level should expand, there is a number of discussions again in the transcripts talking about TraceCop doing better and whether or not it would be big enough to cover them at $1.8 million to $2 million at least. And you’re pretty optimistic that TraceCop after being flat for some time would be growing I know you’ve talked about customers but, it isn’t the number of customers it’s bottom-line revenue. So the first question is why was TraceCop not stronger this year given your expectations from the six months ago.

Reflecting on the words I’ve said I do have some upside for the TraceCop base so we added actually new and one more sales rep to go take it to a new market and his got a reasonable size forecast for this year, so we could see a pretty decent growth there. We’ve got others that we have quoted TraceCop to new ones that haven’t made the top-line appreciably different yet but I do expect that I expect good growth in that area Walter.

And therefore you would hope or expect this year that TraceCop can move to closer to 2 million or exceed 2 million a quarter so that will cover the breakeven of the company.

I believe so like I have two pending right now that are about that order of magnitude. So don’t have an order in my pocket but I believe they will come.

And the second question is Savant is now being in the market for about a year and half you initially lead that with one partner reseller has result of that did 70 part to a 100 small trials which you got paid assume you stop that. You indicated that you and that reseller have decided to address the market differently I’m not sure I understood why you’re saying I heard the words, you’ll no longer do trials you’re going to convert those people in the different way because you explain where that relationship now is and how it will hopefully turn into more meaningful revenues.

I looked it when I was going to talk about today and my words were getting too lengthy so I scratched the few sections off. But let me talk about that, what we’ve learned was, when we did this one-time assessment we would do them an about a week to two weeks to leave them to the customers and there would be a report, it says, here is a snapshot of some issues we see with your network right now. And what we found was happening is the CISO that the customer would receive that and say they brought up 37 things, 112 things or 200 things that I have as security bridges that I need to stop. And what they would do is say, thank you very much they’ve fixed that list and say we’re clean, thank you very much, we’re done. And the truth is, it’s an ongoing deal. And so what we’re seeing that our Savant customers is we’re producing and I haven’t looked at the reports but somewhere on the order of few hundred new ones every month at each customer that have to be there with so it’s sequential, infestations or comprises that we keep seeing on our ongoing business basis. So what me and the reseller partner basically concluded, and it wasn’t just them, we sold some of these one-time assessments directly to customers and none of ours turned in the long-term business either it was sort of a health check they said, thank you see you, we’re done. And we realize that’s a wrong approach. The right approach is, hey, you’re blind, if you want to not be blind instruments your network on a continues basis in every month stop be invertors to have succeeded and that’s what we switched over in the last half of last year and start to getting real Savant orders to continue and then get renewed year-after-year presumably we’re just not coming up on the first of the renewals for those it went in the last part of last year. But so far all of them indicated that they will renew but none of them have had to yet because our trials are just now ending.

And any of them not just renewal, but expanding the number of data center/campus that you’re going to be covering if you’re happy with it, and understand.

That seems to be the case right now internally I forecast that they will renew what's already there but one of them is looking at going from two to eight datacenters and we have quoted both but we don't have a reason to believe that is going to grow yet but yes that's certainly in play these guys have lots of locations.

Okay. But we still have a just a few people who are using the system?

Correct.

And the big part and then I will get off -- the big partner is going through this learning process is now discouraged where they figured there is a way to get their sales force to be more productive and generate these larger ongoing contracts?

It's the latter so they have a security expert team that this kind of led with the sales in both before and after the transition and those guys have nailed the first couple of wins and they have another, another handful of things that they say could order any day now but I would expect another two to five things that they sell as early as this quarter. And then once they see that success the idea is to expand that to more of their sales team.

I could comment on that but little bit but as you -- as we have pointed out and you have pointed out -- when we started the year we had expectations our customer our resell partner had expectations that this would move real fast and that’s why we did all of those early threat evaluations, it didn’t move that fast. But here in the last 60 days the activity level with the new approach that Joe discussed with our resell partner has significantly increased. Now we don't know whether that's going to translate through a lot of revenue or not but it certainly a change in the last couple of months from above from earlier and we're anxious to see how it plays out here.

Okay, again I don't want to [mapwise] I will you push you tomorrow.

All right.

[Operator Instructions]. Your next question comes from the line of [Keith Kramer]. Your line is open.

Yes, thanks. Back in the September quarter when Savant beat out of Mandiant to get the first large client that was because Savant identified breaches that couldn't be identified with virtualization machines. As well what threats to malware does Savant detect which the virtualization machines typically miss?

That's a good question. The first one I will answer is that -- if you are in the malware creation business one of the first things you do is to buy all the standard software and virtualization machines that prototype them and it becomes a matter of I don't ship until it passes all these standard signature machines. And the virtualization machines are not really strictly just signatures, they are behavioral finger printing machines but that's one of the notions is that if you are not doing custom analytics to look at flow and you can actually shrink wrap and ship your product then the advisories can buy those and make that a litmus test to whether it's ready to deploy or not and so.

But the big they use Savant still [indiscernible] and the Mandiant is in the [fire ice] Savant is lighting up when the others have missed those malwares?

That is correct and it's not that we're missing -- we're not trying to find the malware all of our advisories are -- our competitors are saying I am going to find the malware either when it's coming in or I am going to be put it in a like you said a virtual machine does behavioral scrub it. But we're taking the other step of saying however it got here it's here let's look for the outflow of data to look for people stealing your information and that can be like one of the early examples that I use in the seminars was back in the early 90s -- I was looking at the flow from one of our customers and there V.P of purchasing was going to work for a competitor and we saw him emailing all his corporate contacts out just by normal email and that was a $2.1 billion from our customer to whoever that guy went to. And so I learned early on that it's not just malware it can be the guy and that particular guy his name was Lopez if you look at he was VP of General Motors that went Volkswagen early and that was more than decade ago, and I took that lesson when we started to go in down the Savant trial of saying it’s any internal threat which can be an employee or code that immolates an employee, so -- and I not trying to wage your questions so certainly there is a cross section of things that Mandy and all these guys do find and they are really good out that. We -- at most place we engage there their two and I wouldn’t say get rid of their stuff it’s just that you’re not that didn’t do at all.

On the Savant, what is the sales cycle six months or that the reseller started rolling Savant out as their number security product in December, November area, so I am wondering does the sale cycle is at like three months, four five or six months I mean what kind of sale cycle is that?

I think the sale cycle from how long it takes to get into the door to get an order is probably or three to six months realistically, in some of the huge accounts with huge resellers they have an annual agreement with the customer that says hey we’re doing this amount of this and this amount of that, so sometimes we get slipped in as part of the annual renewal, so some of the stuff that we’re looking for an orders in the first or second quarter is not a function of how long have been there, but the fact that their annual renewals coming up and they’re going to add a new dose of this kind of security to complete the offering, so it will vary a bit but I think six months is a reasonable average.

Compare to three months ago how much increases have you seen in the pipeline from the reseller?

After member now we’ve just started engaging with these new reseller partners here in the last three months and so it’s -- we’re really early on with respect to that translating to the reseller partners customers in fact in most case we hadn’t got to that step yet we’re into step where the reseller partners evaluating us.

On the partners we’ve had for a while we see activity and that they talk to my guy every day. We don’t actually see every quote because thereof that size, but we know of 5 or 8 that they have in the short term possible wins bucket up from two, so it’s gone up. Their activity seems to have gone up. We’ve really hadn’t sold much.

If Savant is the success with the large reseller is that mean 10 million to 20 million sales a year 20 million to 30 million a year or those be more year one, year two type numbers?

It’s hard to say that the product is so stable and scalable they couldn’t shock us by order in too many but it’s certainly has numbers like that are larger in terms of ones the elbow occurs. My focus though is making sure that however many customers we have out there they’re just ex static with our deliverables and they tell their buddies. The biggest factor though of growth is going to be one sales one’s jealously of the other ones commission as we get this soon started because if you got a reseller you got to way to literally hire somebody with a big reseller you got to waddle three guys start selling to the two and then 10 and then 1000.

In the previous conference call it was said that 10s of millions of sales force Savant would be in the works, so those kinds of numbers are something you can see more clear now based on the resellers pipeline or your internal sales pipeline the likely conversions and the feedback already from the existing customers?

I believe so yes.

Okay also on now that the resell, the large resellers rolling Savant to its entire sales force, does the sales opportunity grow ex-financially compare to marketing only to their largest clients, I just wondering if they originally it was to go after the real large clients that have 6, 7, 8 campuses or more, but what about of those 100s to 1000s of clients that have that would be 2 or 3 or 4 Savants instead or 8 or 12, is that more of a volume play after while or is that right now in terms of their focus?

We're really not to that spot yet with the customers as the big resale partners for this initial one or the others it were working with right now [Bill], grow with them as a momentum flying with their sales force and we're at a start with a medium size probably to large size customer and then it will gravitate down to the small customers.

Okay, if the Savant still their number one secured vault, it was their number one security product on their slide deck last conference call, is it still one of their or the top line or the one that -- ?

Yes, they haven't moved it off so there is still their lead securities guys are you to not as the lead this is our high end solution that we recommend so nothing has changed there. So, I think.

It's a general rule that compared to three months ago the Savant traction has increased and the pipeline has increased and everything has been increasing your way.

Correct, and I'm certainly working other, the big old channels like that will develop sort of it their own pace once you get them started, there is not much you can do outside to increase the speed of that – giant starting the vault rolling and that's why we're doing some direct work and some other channels as well so we'll have more control over the uptick.

Or the March quarter you've got maybe 5 to 8 largest or Savant clients that might buy, is that what was said in the comments?

That's my assessment, yes.

Okay, one last question was on the if the Savant is, if you saw Savant, is that a recurring sales per year or the license plus maintenance fee that 20% of the original year one, is that a -- ?

It's linear forever, it's a monthly service fee with the license and the reporting is included so it doesn't go up or down unless you increase the number of facilities.

Right, okay so if that large client does 8 campuses that would be almost what's this called 2 million a year but that would be $2 million every year that you get?

Correct.

It wouldn't be 2 million in the first year and then maintenance of 15% to 20% in the second year and the third year and the fourth year?

No.

Okay, I'll get back in the queue, I have one other question, should I ask now or should I go back in the queue?

Okay, go ahead [Keith].

I saw in December of 2014, -- press release on APT that do not use nowhere and that kind of is Savant ideal for those types of threats, that's a sort of a new category of breach and I'm just wondering when in the last couple of conference calls you talked about breaches at the other competitors can't detect, is that kind of what they're talking about?

Honestly, I did not read that result to give you an adequate comment but I'd say the first level, folks – there were strange ways I mean the breach code the – secret to not be called nowhere let’s say that's pretty – so they're trying to probably subdivide but I think the truth in all that is there is things that you won't recognizes nowhere that have maliciousness and we look at a lot of classes of that for example, one of the customers we were looking at had any virus and network backup and other kind of things that are streaming data out to the cloud and natural question is do I trust that cloud who so much leaving and what's in it and I think within the class of threats, you also have violation of trust and improper things so like in one particular case we saw a partner of this particular customer who was a service provider for them and that was just more flowing out and flowing in and you think that's abuse of trust, they're stealing something and so finding a bad apple at your partner is as good as finding malicious code and so from that sense of your question, that was the original target reach since we had HVAC vendor that original vendor that original that software came in, but you just as well can have a human with the other end of that VPN that’s abusing the trust. So I think that’s where we’re particularly strong and focuses on the flow business, -- there. Thanks Keith.

Okay. I just had one other question on the five to eight, was that five to eight clients or five to eight campus I’m just wondering what is the average Savant revenue per client that you see going forward, you have to five to eight client sign up what kind of sales for you would that be?

Okay. Yes, it is customers and I would see them as being somewhere in the range of 150k to 400k a year each for, with initial one or two campus. We’ll see them larger as they grow.

So, each client would do two campuses at 150 to 400k each, so --?

Per campus, each campus is somewhere between 150 and 300k depending on the speed and then I think one or two campuses then that doubles again.

Operator, at this time we’ll wrap up the call. Thank you for participating in today’s call. If you did not receive the copy of the press release or if you have further questions, you can call me at 972-301-3658, email mpaxton@intrusion.com. Thanks.

This concludes today’s conference call. You may now disconnect.