Intellicheck, Inc.

Greetings. Welcome to IntelliCheck Third Quarter 2022 Earnings 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. Please note this conference is being recorded. I will now turn the conference over to Gar Jackson, Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon and thank you for joining us today for the IntelliCheck third quarter 2022 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 14, 2022. 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, in contact for the use of this term. We'll begin today's call with Brian Lewis, IntelliCheck's Chief Executive Officer, and then Jeff Ishmael, IntelliCheck's Chief Financial Officer, who will discuss the Q3 2022 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 welcome everyone to the third quarter 2022 IntelliCheck earnings call. A couple of things to note for the numbers that we believe show that we are on the right track. First, we continue to grow with SAS revenues up 22% over the same period a year ago. As you will hear, we continue to expand within our existing clients, and we are growing customers across many varied use cases. And note that our gross margins remain very healthy at greater than 90%. Second, I think a concern many had is that we would need to raise money to fund operations. That is not the case. Adjusted EBITDA for Q3 was a positive $75,000 compared to a negative $272,000 in the same period last year and a negative $583,000 last quarter. There are two things I've said many times, and I stand by what I've told you before. That is, we see no need to raise money for working capital, and we do not need legions of people to run the company or handle explosive growth. The only primary areas where I see continued increases in spending are sales and marketing, and those increases should create increased growth. We'll be watching those expenses closely and aligning hiring and spending with growth. Before I get into some of the wins of the quarter, I want to remind everyone of the magnitude of the problem we are solving. I think it gives insight as to why our customers continue to expand usage and why we are seeing new prospects coming to us with growing frequency. In 2021, traditional identity theft rose 79% with losses almost doubling over 2020 to $24 billion. The mean fraud amount loss each time increased $200 to $1,551, and that's up $500 since I started in 2018. And if you were one of the 15.3 million Americans who was hit by this crime, it cost you, on average, nine hours of your life and $224 to clear your name. Account takeover fraud was the fastest growing fraud because the bad guys found it was a much larger haul each time at a mean fraud amount of $2,169. Total takeover account fraud grew 90% to $11.4 billion. And unfortunately, if you were the victim of that crime, it costs 14 hours of your life and $515. To our clients and prospects, it is important to stop these crimes in the most simple, frictionless way possible. If they don't, not only do they suffer the monetary losses, they potentially lose a customer and their lifetime value. Studies show that up to a third of people will move their banking relationship if their identity is stolen. Our clients and prospects need something that is accurate and fast, and that is IntelliCheck. I believe the fact that 26 state-level law enforcement agencies use our services to validate an ID is proof of our accuracy. And as to speed, we determined the validity of a license in 44 milliseconds. To put that in context, that's less than half the time it takes to blink. The other distinction I would like to remind everyone of is that IntelliCheck's technology solutions require no new hardware. Unlike the companies that use a photo of the document to compare to a template, we work with the existing scanning devices at retail locations and the check readers at the teller workstations. At the same time, our APIs make it easy to integrate into any traditional brick and mortar system, as well as any mobile app or website. We believe that it's quite the competitive advantage when every study shows that the vast majority of transactions still happen in person. A Businessweek article recently said research from UBS shows that online shopping is back to pre-pandemic levels, so down. And data from the U.S. Census Bureau show that online growth has trailed sales gains of the overall retail industry for the last five quarters. So moving on to highlights of the quarter. I am happy to say that financial services company number three completed their renewal and signed a three-year term that includes a price increase and a commitment to a minimum of a 20% increase in transactions in the first year of the contract. Currently, this client does not do anything in the digital world, but in addition to expanded usage on premise, they intend to open digital channels in 2023. This leads me to believe that the larger increase in volume will be towards the back half of the year. Number three continues to be one of our best reference clients, and I believe this three-year renewal with a contractually committed increase in volume tells you the certainty they have in our product. Financial services company number four has seen a 67% increase in transaction volumes. This is coming from multiple areas. They continue to bring live retailers they are winning from competitors, which is increasing volume. They also have our technology solution now completely integrated into call center software. And call centers are a large vector for account takeover fraud, so we see continued usage there. We have also completed the renewal with a large Midwestern bank client with over 1,100 branches in 10 states, again, with the price increase. I was recently on the quarterly business review with this account and they spoke of the large amount of bot attacks they are seeing aimed at account takeover. And they said they are a nightmare for any company without accurate ID validation. The bank also said they consider themselves a data hungry organization. I shared that with you in light of the fact that they have just completed the migration to the new platform. So they are very interested in and are evaluating all the new signals they have access to. Remember, the first step in proper AML process is to make sure that it is, in fact, Brian Lewis, and then make sure I can and want to do business with Brian Lewis. That is what the platform allows our clients to now do. Last quarter, we spoke about the Omnichannel multi-biometric platform for banks, marketplaces, and healthcare systems that is reselling our ID validation tools. They'd started with us in January of this year and purchased a bucket of 500,000 transactions, which they had to replenish when we last spoke. They have since gone through that bucket and are purchasing another. On the automotive front, in addition to receiving multiple inbound leads and closing those, we've signed an agreement with a reseller working with the CRM and sales engagement software provider to the automotive space. Their software is used at over 1,000 dealerships, and they feel confident that most, if not all, of those dealerships will be interested in the software. An important upsell opportunity to the existing and new auto dealerships clients are those same AML signals that let me know if I can and want to do business with a person. Dealerships have told us this data was important to them. Most of them though were using our portal product on a handheld device or our portal plus web product which allows them to validate a person whether they're standing in front of them or thousands of miles away. We have now incorporated these signals into these products, so these dealerships now have access, so another great opportunity for the sales team. On the age-restricted front, a couple of new unique sales. We are now live with two companies that distribute vending machines for the sale of cannabis products. When someone wants to make a purchase, they scan a QR code, which kicks off the ID validation, and facial biometrics process to make sure that not only is the license real, but I am the one holding it before the product can be dispensed. They have just begun distribution of the machine, so it will be interesting to see volumes going forward. I'd also like to say we are now live with a nationwide consumer goods food and age-restricted delivery company that operates in 650 cities. Our validation tools are integrated into their delivery driver mobile app for checking on age-restricted deliveries. They've rolled out for testing purposes to one northeast city, but anticipate a nationwide rollout in 2023. At the same time, we are coming out with new products, particularly around data. At the end of the quarter, we introduced business intelligence. This is a tool our clients can use to dive into the patterns and uses trends of their transactions data. This is sold as an annual subscription with annual seat license fees by user. We've already made the first sale of it to the media company using us for email password resets, and we are encouraged by what we are seeing in client interest. Currently, it is just each client's own data, but we believe and our clients seem to agree that pooling anonymized community data for comparison purposes is worth even more. And we plan to release that in 2023. The two regional bank prospects we spoke about last call are going well. We are working through the master services agreements with both. And the top three banks continues to slowly move through their process. I'm also pleased to report that the reboot of the sales team is going exceptionally well. We now have six senior salespeople, all of whom come from identity or cybersecurity sales focusing on financial services and AML KYC use cases. In addition, we have three senior account managers focusing on expanding our footprint at existing clients. While these existing clients all continue to grow, we feel those accounts should grow even faster. and we believe dedicated resources will make that happen. Another area we are strengthening involves inbound leads. We have two hungry, motivated people handling those inbound leads, which marketing continues to do a great job of bringing in. Our expanded focus on efficiencies has included a great deal of effort spent on automating all of our processes for scale, many of which Jeff will speak about in just a few minutes. On another front, we've taken another step toward including machine learning in our systems to detect fraud pattern attempts. Again, here's an opportunity to provide data that we think will be valuable to our clients, and we will be including it in business intelligence for a fee. Sales operations is also providing insight and accountability to our processes, which is a valuable step forward. Finally, we have some new certifications that are important to our clients. We are now SOC 2 Type 2, and we have received word that we have verbal confirmation that we will be receiving ISO 2701 and 27701 certifications. The Latitude certifications are very important as they are the first steps to GDPR compliance, which is key for international client-based experience. In closing, you can see that a lot is happening here at IntelliCheck as we make important strides forward with continued existing growth The introduction of new products and the addition of new people to further our progress. This is just the beginning. We have been setting the stage for what we believe will be even greater growth and innovation in the future. I will now turn it over to Jeff.