Intellicheck, Inc.

Good day, ladies and gentlemen, and welcome to the IntelliCheck Third Quarter 2021 Earnings Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host, Mr. Gar Jackson. Sir, the floor is yours.

Thank you, operator. Good afternoon, and thank you for joining us today for the IntelliCheck Third 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 with the Securities and Exchange Commission. Statements made on today's call are as of today, November 10th, 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 will 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 Q3 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 all for joining us today for our 2021 third quarter IntelliCheck earnings call. We have started to see things open up, although there are still lingering COVID impacts to one component of our business. Year over year, we believe that more people will be shopping brick and mortar, which of course is positive. We recognize that due to savings rates and stimulus received during the pandemic, right now shoppers are not necessarily buying on credit or more importantly, opening new credit card accounts. While we believe this will continue to impact us in the short term, we believe that as things start to return to pre-pandemic levels, and people begin to spend in a normalized way, this will drive credit card applications and additional card not present transactions. I would also like to point out the distinction I made just a moment ago when I noted COVID-19's lingering impact to one component of our business. I talked to many people who seem to think we're just a brick and mortar credit card business. Three years ago, that may have been the case, but we've been on a transformational path since I arrived. We've expanded our client base far beyond just credit cards into banking, call centers, gambling, cannabis, stadiums, as well as the digital world, which continues to become an increasing portion of our business. This transformation continues with new technologies and partnerships I will be discussing shortly. Returning to customer shopping habits, we know that shoppers will continue to make in-store purchases, online pickup in-store purchases, They will make purchases online with delivery. They will make buy now, pay later purchases. And yes, the holiday shopping season will likely see an increase in credit purchases. And what each of these behaviors have in common is the risk of fraud and identity theft. Neither is going away. The data shows identity theft and fraud rates continue their upward trend at a record-setting pace. The breaches we continue to see and the enormous amount of personal information already available on the dark web would suggest fraud is only to get worse. and criminals will continue to see dollar signs when it comes to identity theft. Criminals continue to impersonate people with fake IDs created using the identities that they have purchased on the dark web, and we don't see this going away. Looking at the quarter, our Q3 SaaS revenue was up 32% over Q3 2020, and it was flat to Q2 2021, driven largely, we believe, by what I was discussing at the start of the call. We saw an interesting mix in transaction volumes among our clients. Department stores, particularly those predominantly selling apparel, were down 7% to 10% in transaction volumes during the quarter, while those retailers selling electronics, appliances, and our banking clients were up almost the same amount. Interestingly, those same retailers that were down in the quarter had October volumes that were up 15% over September. Again, this quarter, much of what we have been investing in and working on this year has been transforming the company to be more of a digital identity company rather than purely an ID validation company. As I said earlier, this transformation will allow us to move into many more markets and provide more services to our clients and prospects than purely ID validation. Anytime you need to validate an identity, whether in a physical or digital setting, we believe our efficacy makes us the best and most vital first step and therefore the logical partner to get other risk signals from. We stop the bad guys from getting in. But even if you are who you say you are, there is additional information we can provide through partnerships to help clients and prospects with their KYC or Know Your Customer obligations. We believe that this opens up opportunities for new verticals that need a much more in-depth identity check that goes beyond, is the ID authentic? We view this as incremental product offering with a large addressable market that includes FinTech, gambling, and other markets. Moving forward, there are developments on a few fronts that I want to share with you and bring you all up to speed. As usual, we're first going to look at some highlights with our existing clients and some new wins. We're also going to look at the changes we made to our pricing model and our new efforts on channel partner sales. I'm also going to tell you about the reseller agreements we have entered into to expand the product set we can offer our clients and the launch of our new platform 2.0 that makes this all possible. First, the updates on our financial services clients. Financial services company number two completed its project to provide applications and account lookups through a tablet instead of having to go through the point of sale system. This allows them to get their clients up and running and using our services much quicker. In addition, we are working with two new retailers with approximately 600 locations each, and they expect to be live in early Q2 for credit apps and account lookups. Number two is also very excited about their new business pipeline, and they tell us it should be a very good year for new clients using our services. Financial services company number three has rolled out their pilot of their teller workstations. So far, all is going well, and they expect full deployment to their 720 branches in Q1. They continue to work with their home improvement client to expand to their multiple point-of-sale systems. However, that requires some changes to the bank's internal systems, and that timing remains out of our control. Given the speed at which number three moves, I would expect that to be second half of 2022 event. The good news is that they continue to be an excellent reference for us, both with industry analysts and prospects. It never hurts to have the SDP of fraud tell prospects that he thinks we are one of the top five fraud fighting tools of all time. Financial services company number four is pushing to integrate our services into all of their retailers' digital channels. A big benefit of online is that it does not impact their point of sale system, so we can be working during the normal holiday code freeze. In addition, as they look to increase the use of our products in Canada, we're bringing live the ability to authenticate Canadian health cards. These are valid forms of ID for some provinces and have barcodes like the Canadian driver's licenses. Additionally, they are in the process of rolling out their mobile banking project that allows their clients to validate themselves on the bank's mobile app. This effectively adds a layer of security for both the bank and their clients as the banks add more digital use cases. They estimate that 40 to 45% of their clients have the mobile app installed on their phones. In addition, you may remember from the last call that they prepaid for what they believed would be a year's worth of transactions. At the current rate of consumption, it looks like they will draw that current allocation down by May. We anticipate that if the additional clients and use cases they plan on rolling out happen on time, More likely they'll run out by Q2. I'm also pleased to share with you that the latest development with the bank consortium owned company we signed late in Q4 last year that helps financial firms detect and prevent fraud. They've agreed to be a beta client for our new platform 2.0, which I'll be discussing shortly. This will allow them to use our products more frequently in their call center, And their intention is then to roll our services out to their digital payments network. In addition, we now have a new financial services client. We signed a master services agreement with a California-based provider of among other things, mobile banking, personal loans, credit card, and student loan refinancing. They're going to start with our no integration product while they integrate our API into their systems. We expect rollout in Q1. As we look at expanding into other markets, one of the markets we have been targeting is college stadiums. With more colleges and universities selling alcohol in their stadiums on game days, there is an increased focus on preventing underage access. And we're talking about more than football games. This trend is spreading across a variety of sports. This has brought greater focus on the continuing and growing use of sophisticated fake IDs by minors. Recognizing this opportunity, we've been targeted an increasing number of college stadiums selling alcohol with good effect. We recently signed two major SEC schools who are pre-purchasing 20,000 transaction buckets that automatically refill when the balance gets low. We have proposals out to several other schools as we continue to grow our footprint in what we see as a very promising market. You notice that I've been saying transaction buckets. As we discussed on the last call, we're having customers prepay for a specific amount of transactions they can use in a month or year. This has gone very well. Most new clients are being signed this way. All renewals are now under this model. And looking at renewals, I'm pleased to report that we've continued to have a very sticky client base. As our clients' contracts come up for renewal, it is important to note that we are raising prices for each of those contracts. Our client acceptance of these double-digit price increases underscores the value our technology solutions continue to provide. Earlier in the year, I alluded to our plan to refocus our efforts involving channel partners to resell our products, and we are making strides in that area. First, we signed an agreement with one of the largest providers of inventory and point of sale systems for the cannabis industry. Integration is complete and we've begun joint marketing efforts targeting their customers. We have also signed agreements with two major point of sale system providers to the hospitality industry to incorporate ID validation into their systems. Collectively, these two point of sale system providers represent over 2,400 bars and restaurants. Integration with both is now underway. In addition, we have signed an agreement with a company that sells an omni-channel, multi-biometric platform to banks, marketplaces, and healthcare systems to use our ID validation tools as part of their onboarding process. They have pre-purchased 250,000 transactions. We continue to work on other channel partners and resellers as part of our IntelliCheck Inside strategy that features our technology solutions and then selling them through our partners. In a similar vein, we've signed deals where we are the reseller of additional validation tools in a similar manner to what we've done with biometrics. As part of the KYC process, many clients need to know about criminal backgrounds, so we've signed a deal with a company to sell access to criminal background data. Another significant development that opens up global opportunities revolves around the expansion of our validation capabilities beyond North America. We signed a deal with a company that will give us the capability to validate identity documents from over 200 countries. We'll be sharing more details with you shortly, but what it comes down to is this. We believe our superior accuracy compared to what some view as our competition in North America coupled with being on par with over 200 additional countries with less sophisticated forms of identification, gives us a distinctive competitive edge for clients that need international coverage, while at the same time potentially expanding our footprint globally. Integration for both the background checks and international validation is underway, and we intend to update you with press releases when we're ready to launch in Q1. As I said earlier, this has been a very transformational year and to achieve this advancement has required additional investments in the business. We started by retooling the Salesforce and by the prospects I see in our CRM, this is paying off. Looking ahead, we believe we should show notable growth in 2022. As you know, we also invested in creating a marketing department and that also has paid off. We signed twice as many clients in Q3 from inbound leads as we did in Q2. While so far most of these new agreements signed have been for smaller clients, given the number of these deals, the ACV or annual contract value adds up. I can also say that lately we've had inbound leads from ranking people at major financial institutions. So our brand and market awareness continues to grow. The stage for this major phase of transformation is what we are calling Platform 2.0. Historically, we did only one thing, and we believe we did it far better than anyone else, and that is validating North American IDs, driver's licenses, and military IDs. Unfortunately, our back end was lacking the level of flexibility needed to become more of a powerhouse within identity validation and digital identity. For example, what we formally called Age ID was a separate platform from what we called Retail ID. This level of complexity didn't make a lot of sense as they both did the same thing, validate the ID. The only difference was what was returned to the client and how they wanted to consume the services, a handheld device or a direct integration. It also made it difficult to quickly incorporate new features that clients want to utilize as part of their KYC process. Remember, to open an account, I may be who I say I am, But there are other things you might want to know about me to evaluate the risk of doing business with me. Depending on the nature of your business, other essential questions you may need to answer include, am I a politically exposed person? Am I a special interest person? Am I a relative or close associate of any of those people? Are there any sanctions against me or have I committed a crime? These are important data points to know that we need to offer to fully support many of the markets we are attacking. 2.0, we can easily integrate new risk signals into the platform. And while doing so, we are able to make it very easy for our clients to pick and choose off of a menu based on their needs, enabling them to select additional risk and identity services they would like us to provide them. I'm excited by where all of these developments are taking us. We truly believe we have effectively moved the company forward to become a future-ready, on-demand, global platform that are allowing our clients a more flexible, refined solution for validating any ID in both physical and digital use cases with the additional risk signals of their choice. All of that while continuing to distinguish ourselves in the industry by providing what no else can with near perfect certainty. We believe we continue to be a leader in authenticating government issued ID as the first critical step in combating identity fraud, keeping age-controlled products out of the hands of the underage, and increasing police officer effectiveness and safety. In closing, early in my tenure, I told you that I was excited by the prospects that I believe the future held. My feelings have not changed. I remain excited and energized by the opportunities I believe lie ahead and what I believe is a bright future for this innovative company. I will now turn the call over to Bill to go over our financial results for the quarter.