Intellicheck, Inc.

Greetings and welcome to the IntelliJack Q2 2021 earnings conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the form and 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, Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and thank you for joining us today for the IntelliCheck second quarter 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, encourage, and 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 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 of the securities and and Exchange Commission. Statements made on today's call are as of today, August 3rd, 2021. Management will use the financial term adjusted EBITDA on 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, and then Bill White, IntelliCheck's Chief Financial Officer, who will discuss the Q2 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 I welcome everyone to the 2021 second quarter IntelliCheck earnings call. As you saw in the press release, it was a productive quarter driven by reopening and new client onboarding. Contributing to our progress are the steps we have taken towards increasing the size of the sales team, raising awareness of the company, thereby increasing inbound leads, and the advancements we have achieved in rounding out the IntelliCheck platform to provide many more risk insights for our clients. In addition, we are in the process of revamping our pricing model to increase prices upon renewals. I will touch on these things during my prepared remarks, but first I'll highlight some of the key financials from the press release. Total revenues for the quarter were just shy of $4.8 million. SAS revenue was just over $3.2 million. That was a SAS increase of 16% over Q1 and a 93% increase year over year. We delivered half of the hardware order that we discussed on our last call for the Teller Workstations for financial services company number three during the second quarter. We had a net loss for the quarter of $738,000 and adjusted EBITDA of negative $46,000. The loss is primarily due to our investment in headcount for sales and development teams, in addition to marketing spend to drive our growth initiatives. Same store volumes continue to improve, but while they are on the rise, they are still not up to pre-pandemic levels. As I said on the last call, in April, we were down 10% to 15% from April of 2019, depending on the retailer. For the second quarter, that improved to down 10% overall for the full quarter versus 2019, with improvements each month. I am pleased to say that the digital side of our business continues to increase each month with an increase in digital transaction volumes of 484% over the past 12 months. This is probably undercounting as some of our clients use our API for both physical and digital transactions, and they look the same to us. So currently, on a conservative basis, digital transactions represent about 6% of all non-age-regulated transactions. Turning to a few of the major financial services clients and what they added during the quarter, we're seeing continued growth in our partnerships. Financial services company number one has an extensive client base of merchants they provide credit cards for. Many are small chains or single stores that sell expensive merchandise like jewelry. These are bank-branded cards, and the retailer is not the one on the hook for fraud. So our no-integration solutions on a handheld device or a web portal are the perfect and economical ways to stop the retailer's fraud losses both quickly and efficiently. This network is over 14,000 merchants nationwide, and we've begun joint marketing efforts with Number One to introduce our solution to each of these merchants. Financial services company number three completed the rollout of phase one for a national home improvement chain that is initially implementing us at the self-checkout point-of-sale system. They are continuing to work to bring live the other POS systems, the assisted checkout, customer service, and commercial checkout. As mentioned, they also took delivery of the first half of the hardware order for the teleworkstation scanners. You may recall that they put these scanners in place so that we can validate passports in addition to driver's licenses and state IDs. We anticipate that the second half of the order will be equally split between Q3 and Q4. Installation is currently underway, and they anticipate a Q4 rollout. Financial services company number four has completed the in-store rollout of the Midwest Home Improvement Chain and is expecting to go live with the digital channel for that and two other retailers this quarter. They continue to find new use cases for authentication. In order to prevent account takeover, if on the web or in their app you change PII or privacy settings, they will ask you to validate yourself. Financial services company number eight completed the rollout of our services into their online applications process and are continuing to build into their mobile app with expected delivery in early Q4. Outside of our core financial institutions, we brought a Baltimore-based credit union live in June. They wanted to stop fraud immediately, so they're using two of our no-integration products to validate IDs for new account openings and all new loan applications. They are now looking at our APIs to work on integration to their core teller system to use our platform for all teller line transactions. We're also pleased with the execution of another element of our strategic plan. We signed deals with several interesting software providers to enable them to use our technology inside their applications as resellers. The first is a provider of loan origination and servicing software. They have already identified their first client and are expecting to take them live near the end of the quarter. The second provides software to help customers apply for credit online or at in-store kiosks for multiple credit providers. Development is ongoing with this reseller. While I'm not certain of the transaction volumes either of these resellers may deliver, it shows that we are making good on our plan to extend the reach of the sales force through channel partners. As you can see, we've been pretty busy and we believe we will continue this pace. Our optimism is based on what I touched on earlier, our commitment to take the critical steps that are key to continuing this trajectory. Our investment in the sales team is paying off and we continue to expand the team with the addition of another senior salesperson during the quarter, with more hiring in the pipeline. As I have said before, given the amount of opportunities we see, we will continue to hire salespeople as fast as Bruce feels he can effectively train them. Given what I'm seeing from the growth of a very realistic pipeline, the hiring is working and I want Bruce to keep it up. Marketing is also having an impact on a number of qualified sales leads that have increased six-fold over Q1. While many of these leads are in the age-regulated space, the rest show that the awareness of IntelliCheck is increasing, and some are from potentially large clients as well as significant channel partners. The nice thing about the age-regulated clients is they are quick to close and are highly profitable, especially under our new pricing model. In the age-regulated space, it accounts for approximately 6% of our SaaS revenue. Under the new price model, we are earning an average five times as much. So I like this type of client with a low cost of acquisition. I would say that as impressive as the marketing initiative has been so far, we believe it is only in second gear. I mentioned the new pricing model, and we view this as another important element in our continued success. Clients generally have an idea of how many transactions they will do in a year, and they certainly do at renewal time. For new contracts and renewals, clients commit to a set number of transactions per year. The more they commit to, the lower the cost. The farther in advance they prepay will also lower their cost per transaction. If they lowball the transactions and run out, they can continue to pay at the higher price and commit to a new contract at a higher transaction volume. This has been well received by our clients even as we raise fees at renewal. So far, all renewals have been at higher rates, which again we believe shows the value our clients place in the certainty our platform provides. We continue to expand the capabilities of our platform. This allows us to expand into the much larger identity market to provide KYC tools to financial services and fintechs. We are working to bundle the products to help the growing number of fintech companies, several who are clients, perform their KYC functions more easily and quickly. We are improving our internal technology so that we can be agnostic when it comes to the services that our clients want us to bundle for them. We plan on working with multiple partners for different services so that our clients can pick the service they think is best, knowing that they are starting with our ID validation tools, which provide the most certainty. We continue to build on our channel partner strategy, including discussions with companies that are often considered competitors, but actually do things entirely different than we do. We feel we can become the best first step for their clients as well. I was recently speaking with a market research analyst, and he said something that really put it in context for me. He said in speaking with a bank client his firm consults with, the client told him that OCR was 60% effective and followed up with, with that, I might as well flip a coin. Through our investment in sales and marketing, people are beginning to understand we are different and that we bring certainty to the transaction as opposed to a coin toss. We believe that our investment in expanding the platform will help us bring that certainty to more markets. I'm excited for Intellitech's future. For that, I will turn it over to Bill to discuss the financials in more detail.