Intellicheck, Inc.

Greetings and welcome to IntelliCheck first quarter fiscal year earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gar Jackson. Thank you. You may begin.

Thank you, operator. Good afternoon and thank you for joining us today for the IntelliCheck first quarter fiscal year 2021 earnings call. Before we get started, I will take a few minutes to read the forward-looking statement. Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended. When used in this conference call, words such as will, believe, expect, anticipate, encouraged in similar expressions as they relate to the company or its management, as well as assumptions made by and information currently available to the company's management, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the company undertakes no obligation to or and expressly disclaims any obligation to update or alter its forward-looking statements, whether resulting from such changes, new information, subsequent events, or otherwise. Additional information concerning forward-looking statements is contained under the headings of safe harbor statement and risk factors listed from time to time in the company's filings with the Securities and Exchange Commission. Statements made on today's call are as of today, May 4, 2021. Management will use the financial term adjusted EBITDA in today's call. Please refer to the company's press release issued this afternoon for further definition, reconciliation, and context for the use of this term. We'll begin today's call with Brian Lewis, IntelliCheck's Chief Executive Officer, then Bill White, IntelliCheck's Chief Financial Officer, who will discuss Q1 fiscal year 2021 financial results. Following their prepared remarks, we will take questions from our analysts and institutional investors. Today's call will be limited to one hour, and I will now turn the call over to Brian.

Thank you, Gar, and thank you to everyone who has joined us for our first quarter 2021 earnings call. I'm excited by what was accomplished this quarter, but even more so by the greater signs of openings we see, the additional use cases our existing clients have and are putting into place, as well as the deals in play and the increasing pipeline that we believe is on the horizon. When I factor in our three new sales hires, I believe that we are setting ourselves up for very well for the coming year. Before I get into all of that, though, I'm going to highlight some of our financials. Q1 SaaS revenue grew 24% over Q1 2020, with total revenues down 8% due to fewer ancillary hardware sales versus a comparable prior year period. In Q1 2021, 97% of our revenue was SaaS revenue, and as a result, our gross margin for the quarter was 92%. SaaS revenues in Q1 versus Q4 was also off by 8%, but I would point out that in a normal world, we have consistently seen that there is an approximate 12% drop in transaction volume from Q4 to Q1. I think the smaller than expected dip points to some signs of reopening and higher store traffic, which we'll touch on in a moment. We had a net loss of just over $1 million in the first quarter that included $981,000 of non-cash stock-based compensation expenses primarily related to attracting and retaining talent. Q1 2020 EBITDA was at negative $52,000 compared to a positive $144,000 in Q1 of 2020 and just over $634,000 in Q4 of 2020. Now turning to signs of reopening and higher store traffic. We compared transaction volumes in Q1 to the previous year to estimate the impact of COVID. Similar to Q4, we continue to see in-store transaction volumes down in the same 20% range. Since Q2 of 2020 was almost a total lockdown, to see how we are trending through April, we compared same store volumes for clients fully implemented in Q2 2019. The good news that we're seeing a steady return to normal transaction volumes with the numbers depending on the store, generally down in the 10 to 15% range, an improvement on the down 20% we saw on Q1. We believe this is in line with the widely reported trends in mall traffic declines. Logic would suggest that all the retail and bank locations we brought online during the pandemic would also be down in the same ranges. As we look at recent developments with some of our current clients and some of the additional use cases they are putting in place, we believe that there is more good news ahead. By way of background to those who are newer to this story, when I joined IntelliCheck just over three years ago, I focused our efforts on in-store validations of people. This was an important initial step because it proved our value proposition, demonstrating that our solutions provided the most certainty when you needed to make sure the person on the other side of a transaction is who they say they are. And as our clients tell us, IntelliCheck delivers far more certainty than any of the competition relying on OCR. Not only did that focus allow us to sign clients, we also signed major reference clients, giving us a lot of credibility in the marketplace. At the same time, we knew that we had to do more than just ID validation, especially in the digital channels. It was clear that we needed to become a platform that provided more to our clients which we have steadily been doing over time. Our first step was to add facial biometrics to the platform so that if you are not standing in front of me, not only can I be certain that the ID is real, but also that the legitimate owner is holding it. We have subsequently added the ability to read the words on the front of the ID to make sure they match what was encoded in the validated barcode. We have in production and will be releasing shortly even more key indicators to help detect fraud. We will provide our clients with fraud scores based upon the VPN, the mobile device, phone number, and address validation for any digital transaction to provide our clients even more certainty in any transaction. I've said this before about certainty, but it's worth repeating because this speaks directly to our value proposition. Our clients start with us because they understand that it doesn't matter what you do after the first step if your first step is only right two out of three times. Our certainty provides the greatest first step in any transaction. That is why our clients are expanding use cases for the IntelliCheck platform for both physical and digital transactions. As we look at the updates on the expanded use cases of some of our existing clients, it really underscores my point about certainty and our value proposition. For those who asked, I will go back to discussing them by the numbers we have previously used to reference them. Financial services company number two is in the process of rolling out two new retailers. One is a footwear retailer with over 1,000 locations. The other is a pet products and services retailer with 1,500 locations. Both retailers will be using us for new account opening and loyalty account lookups. Financial services company number three has completed integration and has begun phase one rollout for the largest home improvement retailer in the United States. This will be a phased rollout as a retailer has multiple point of sale systems, self-checkout, assisted checkout, customer service, and commercial checkout. Phase one is new account opening at self-checkout. Phase two is for the POS for the assisted checkout for new account openings. At the same time, the bank is also in discussion with the retailer to add account lookup to all phases. Phase one rollout is expected to be completed by the end of this quarter. Financial services company number three is also finally going to begin rollout to the bank branches. While hardware is not our focus, as I've said in the past, we will purchase it for clients as an accommodation if it helps the client and we can mark the cost up. Number three placed an order worth up to $2.7 million for scanners for the teller workstations in the branches. We expect all scanners to be delivered by early Q3 and roll out to the branches to begin as soon as July. Financial services company number four is leaning heavily into the digital space. They are in development now to add new use cases, including the digital channels, for online credit applications for two existing clients. They are also in development to bring live for both in-store and digital use cases, a Midwest chain of home improvement stores with over 300 locations. These use cases and new clients are expected to go live by the end of Q3. And the progress doesn't stop there because we have another milestone achievement with this client. Their in-branch pilot to incorporate our platform into their mobile application their employees use for VIP, or non-teller transactions was a success and is being fully rolled out. Financial services company number eight, the Canadian provider of buy now, pay later financing, was acquired by a company that provides online, mobile, and branch-based loans and financial services to underbanked customers. Given the success number eight has had stopping fraud with IntelliCheck, the new owner is doing the integration work to pilot our platform for all of their online credit applications. Financial services company number nine, the Midwest Bank, has completed the work to integrate our platform into their mobile banking app. The release date had been scheduled for this month, but it's currently delayed as they are tweaking their user interface. I believe that the moves by these financial institutions to expand on the success they have had with IntelliCheck platform in the physical use cases and into the digital use cases makes an important statement. It proves that our platform works equally well in both environments. I'm also pleased to share the good news about our robust pipeline. Keep in mind that we don't consider a company a prospect until they've entered into an NDA with them so we can discuss confidential details. So far this year, we've signed 25 NDAs with prospects ranging from the top banks we are targeting to potential resellers. I think that this is a tremendous number given our limited sales force, which is why I said on the last call that we would be hiring. And as you may have seen from the recent press leases, we have done just that. We have added senior talent to the team with Garrett Gaffkey, David Andrews, and Bruce Ackerman. Garrett brings a wealth of product strategy knowledge and is already providing value to the team that I knew he would. David's marketing acumen has significantly increased lead generation. And as a person with a strong track record in sales management, I can candidly say I wish I had been half as good as Bruce. I also said that we'd be hiring salespeople, and we've made good on that commitment. We've hired three additional salespeople since the last call, bringing our total to nine. I also want to address a question that has been raised several times. I've been asked why we don't just hire 20 salespeople at a time. Again, coming from sales management, and Bruce agrees, if you bring on too many too fast, you will fail. The reality is productivity of the team will drop. The new sales hires will not be successful because you can't devote the time to properly train them. And in the end, you will lose many of them. We plan on continuing to add to the sales team when we feel we have the bandwidth to effectively train them. That way we know we are properly investing in our talent to make sure we have a productive team. Given what we have accomplished with the limited size of the team we've had, I can't wait to see what we achieve with a larger team under Bruce's direction. I strongly believe IntelliCheck has demonstrated its strength and resiliency underscoring what I shared with you earlier about our accomplishments. Despite the many challenges that we have had from this once in a hundred years national health crisis, we have continued to implement our strategic plan and I am anticipating more positive developments in 2021. We continue to expand within our existing client base, which demonstrates the certainty of our platform, while at the same time we are signing new clients. We are rapidly expanding into the digital world and offering our clients additional fraud indicators to add to the certainty of person not present transactions. We rounded out the team to fill some of the gaps I saw in skill sets. I know that you are as excited as I am to see what we can do with more talented salespeople out there spreading our message. With that, I will turn it over to Bill to discuss the financials.