Intellicheck, Inc.

and welcome to the IntelliCheck Q3 2024 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, 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 2024 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 would company or its management, as well as assumptions made by an information currently available to the company's management, identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Throughout this call, we may reference certain financial metrics that have been rounded for the ease of discussion. 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 Exchange Commission. Statements made on today's call are as of today, November 13, 2024. 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 will begin today's call with Brian Lewis, IntelliCheck's Chief Executive Officer, and then Adam Skragovic, IntelliCheck's Chief Financial Officer, who will discuss the Q3 2024 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.

Hey, thanks, Gar. And good afternoon and thanks for joining us today for our third quarter 2024 earnings call. Total revenues for the third quarter were $4.71 million and SAS revenues increased slightly, totaling $4.66 million. Our gross margin remains strong at 91% in line with last year's results. Of note, our new business continued to generate higher prices per transaction values. During the third quarter, our new business price per transaction increased 25% year over year and 8% sequentially when compared to the second quarter this year. We believe this further reiterates our pricing power. On our last call, I began with an update on some recent organizational changes. I told you about Sandra Bowers joining the team as vice president of customer success and account management. I'm very pleased to say that she hit the ground running and has already made significant progress in a very short period of time. Sandra has evaluated our customer success program as it made changes to the organization that we believe will drive sales growth as we enter 2025. One of the big opportunities that she saw in an area that we have needed to capitalize on more effectively is driving more use cases per customer and increasing incremental revenue. Sandra has done a deep dive on the product pipeline, has been putting plans in motion that we expect will drive additional revenues with many of our customers. She's effectively aligned with the sales team. gave a fresh look to our customer-facing marketing materials, and is providing valuable input into these important areas. We see the customer success program as a key metric to our success. Organizational change is not a new topic on these calls. I have continued to underscore my commitment to organizational review with a focus on our needs and having the right people in the right positions to drive revenue growth. I will not be reticent in calling it as I see it and will not hesitate to continue to make changes if I did not see the progress I expect. My objective is to put the best people into operational roles that will position us to drive growth and product innovation. We are continuing to attend trade shows as we leverage opportunities to grow brand awareness of our distinctive, hardware-agnostic, state-of-the-art technology solution and our role as thought leaders in the identity theft and fraud space. At the Identity Week conference in September, I was pleased to participate in a panel discussion on fighting online fraud. It was great to have a presence with distinguished co-panelists that included Scotiabank Vice President Global Fraud Management and Capital One Senior Counsel for Enterprise Innovation. In addition, Chris Meyer, our VP of Sales, chaired a roundtable discussion on fighting fraud. Chris was also active at the Dados Insight Financial Crime Trade Show, where he led an intimate roundtable discussion from risk to reward, transforming fraud prevention into customer acquisition. Just a few weeks ago, we participated in Money 2020 for the second year. This conference is considered the world's leading premium content, sales, and networking platform for the global money ecosystem. Money 2020 has a distinctive focus on what's next in the world of payments, fintech, and financial services. This prestigious show allowed us another strong platform to increase brand awareness. We continue to evaluate our attendance at these shows with an eye towards return on investment and brand building as we also explore other opportunities that may serve us well. We believe that we have the most accurate and hardware-free SaaS solution in the market today and that these trade shows should drive both market awareness and sales for IntelliCheck. And one final note on marketing initiatives. Marketing continues to be a focus for us and is another area where we see additional opportunities to drive more interest in IntelliCheck and our product offerings targeting multiple verticals. We are in the process of shifting a greater focus to developing support materials for the sales force based on what we have learned over the past six months. Turning now to sales. In this quarter, we reach an agreement with a retailer located throughout the Southeast region that serves as the umbrella corporation for 287 franchise locations of a well-known retail chain offering a variety of signature home furniture, decor, and accessories. We also achieved an important milestone with a leading operator in the retail lease-to-own space. We are now live, assuring the validity of high-risk applications. This adds to the growth we are seeing with this client who continues to implement our technology in their brick and mortar locations. We anticipate this partnership will generate annual revenues in the low six figures with their initial use case alone. While we continue to diversify and see substantial growth in our newer vertical markets, retail remains a large important part of our mix. One of our prominent department stores that does their credit card processing through one of our leading bank clients is shifting part of their process to now run their transactions through the bank API. This is good news for us because the bank has a higher transaction value per scan, and as a result, we've seen an uptick in revenue generated from this retail customer, which leads me now to the banking vertical. We believe this move also further solidifies our relationship with this bank that does credit card transactions for multiple merchants as well as their retail locations. Additionally, this incremental revenue reinforces our pricing power. As others with inferior products cut their rates in order to try and gain share and remain relevant, we continue to increase our per transaction pricing with little resistance. We anticipate that the revenue generated from this bank will have a material increase as we enter 2025. To give you a little history, this bank's transaction volume has increased far beyond what they originally projected, and they ran through their prepaid bucket much faster than anticipated. Right now, we're seeing 30% growth across their combined channels And as a result, this banking client is reassessing their future transaction volume needs, recognizing they sharply underestimated their usage. This happened faster than either of us anticipated, so we are currently billing them in arrears for usage, and we are working towards a new three-year annually prepaid commitment from them that we anticipate will be signed and paid for in the first quarter. Continuing with our efforts in the banking market vertical, one of our large regional banks has signed a new multi-year agreement, and they are now fully rolled out and live in 1,200 bank branches with plans to expand to a digital use case in the near future. We anticipate this being a mid-six-figure revenue-producing agreement annually over time. The powerhouse southern regional bank with more than 2,700 branches we previously partnered with, is in the process of working with us towards finalizing a multi-year deal for their in-branch location rollout. This multi-year agreement stands to have significant implications. They are in the process of integrating IntelliCheck's technology solution into their teleworkstations, and we believe it has the potential to become a multi-year, seven-figure contract beginning in the middle of next year. I am pleased to share with you that we have continued our expansion into Canada. During the third quarter, a small but growing Canadian online bank completed integration for digital online use cases. Canada has been a growing market for us, and we continue to believe that we will see additional opportunities to drive revenue there. Our real estate market vertical presence continues to see solid growth. On our last call, I shared with you news of IntelliCheck's partnership with the nation's eighth largest title insurance, Doma Title Insurance. You may recall that Doma Title has partnered with IntelliCheck, providing its agent and attorney customers with access to IntelliCheck's web-based solution that validates, analyzes, matches, and de-risks the identification credentials of parties involved in real estate transactions. is being offered to DOMA agents who are signing documents as part of a DOMA insured transaction. DOMA title turned to us to address a rising trend that is costing title insurance companies and homeowners billions of dollars in losses each year. Seller impersonation fraud is a real estate scam in which a fraudster poses as a property owner to illegally sell without the true property owner's knowledge or involvement residential, or commercial property. As incredible as it sounds, it is happening with greater frequency. Sophisticated fraudsters often use the property owner's fraudulently obtained Social Security and driver's license information in the transaction. In many cases, fraudsters use email and text messages to communicate with the title agent, allowing them to mask their true identities and commit crime from a remote location. Also called seller ID fraud, the scam is most rampant in the high volume states of California, Florida, and Texas, but schemes have targeted property owners throughout the country from rural areas in the south to cities in the midwest. A troubling statistic that demonstrates just how serious the problem is serves to underscore the financial impact. In 2023, 30% of all claims paid by DOMA title insurance involved fraud and forgery. Early data from the first few months of 2024 is further evidence of the significance of this problem. In those first few months alone, seller impersonation claims surpassed 2023 damages. I hope you had time to read the Dolman Title Insurance press release that was issued in August, because I believe you too will appreciate hearing about the consequential impact IntelliCheck's technology solution is having from one of Dolman's Title agents. We believe this further sets the stage for additional growth in this area, and I am pleased to share with you the fact that we are seeing that already. Another title insurance company that is capitalizing on the value of our technology is Westcorp Land Title Insurance Company. Westcorp is the number one independent title insurance underwriter in the nation. Their model is a bit different. They have launched ValID by Westcorp. It's an advanced ID verification tool designed to empower title agents in validating the identities of borrowers and sellers. They describe this new tool powered by our technology solution as delivering, and I quote them here, unparalleled access and speed in ID verification. The tool features a comprehensive dashboard that provides title agents with real-time tracking of ID verification status, enabling them to manage their workflow efficiently. with validation methods that include state-issued IDs, passports, and support for foreign transactions. ValID provides multiple validation options, including mobile texting and live email hyperlinks, ensuring flexibility and convenience in the verification process. This comprehensive approach to identity validation helps agents enhance their due diligence process mitigate risk, prevent fraud, and prove overall transaction integrity. We really appreciated a comment from Scott Chandler, Chief Operating Officer at Wet Square Land Title Insurance Company. He said, and again, I'm quoting here, we are confident that this tool will be a game changer for our agents, allowing them to perform their duties with greater confidence and efficiency. We couldn't agree more. On our last call, I noted that we are seeing growth in our title business, and the addition of these clients highlights why we believe that trend will continue. In a related development, a wire transfer company that has just completed the integration of our technology solution and are now just starting to ramp up, In this client's recent findings on the state of wire fraud, the data show that 1 in 20 Americans who bought or sold a home within the past three years has been victim of some type of real estate fraud, with the median amount in consumer losses exceeding $70,000 as a result of the stolen buyer's down payment and the seller's net proceeds. The companies warn that fraudsters have become increasingly skilled at leveraging public records, breaching broker and title agency systems, so they're able to effectively pretend to be someone involved in a transaction to steal from unsuspecting consumers. Although there are multiple warnings in place at all parts of a real estate wire transaction, consumers are still targeted through communications that convince them to send money to a fraudulent account or an entity that they believe to be true. Fraud just posing as someone involved in a transaction via email to scam victims out of their funds has seen dramatic growth. The latest data from the FBI showed that this type of crime, which they categorize under business email compromise, cost victims a record 446 million in real estate transactions during 2022. So now turning to our email social media accounts, in the domestic and international social media space, we do have an update. There has been a delay in that rollout, but not for reasons that should be of concern. And in fact, we believe it's good news. This American multinational company operating as one of the largest social media platforms in the world that shows IntelliCheck for ID validation has been so impressed by our technology that it's working on a larger use case than originally anticipated. In our discussions, they have told us that their goal is to be live no later than early next year. This marks the second globally recognized social media platform that has implemented IntelliCheck's technology and has been so impressed with its performance that they are expanding its application. You may recall that the use case for the original social media company we started working with a few years ago was for identity validation to prevent fraudulent account takeovers. In the stadium operations market vertical, we are looking at finalizing deals with two high-profile food and beverage concession operators that service multiple stadiums and arena venues. In addition, through these two operators, we are in the process of closing an agreement with a primary point of sale company for sporting venues that would incorporate the IntelliCheck validation process directly into their point of sale system. What is important to note here is that these leading operators have more than one objective in mind. Of course, they're concerned about preventing underage access to alcohol through fake ID use. However, they have an equally important need to address over-serving. If an individual is over served and leaves their premises drunk, should they be in an accident, engage in violent behavior, or other activity that results in damage and loss, the liability for these operators stands to be monumental. Our technology solution is able to track drinks served per customer and allow the server to prevent over service. We are also continuing to build our position in the digital space. A software company that specializes in identity management is in the process of incorporating our technology solution in their platform. Programming is underway for this new client, which describes itself as an identity security platform behind over half of the Fortune 100, 13 of the 15 largest U.S. banks, and seven of the nine largest global healthcare companies. We believe this agreement underscores the superiority of our technology solution. In the automobile market, we are seeing solid growth in the vertical. Automobile is up 28% over Q3 2023, underscoring why we believe this is a great vertical for us to continue to pursue. On our last call, we introduced another new vertical, employment verification. Employment verification is a multifaceted market vertical where we are starting to see our expansion efforts pay off. In our previous call, we discussed the use case in the cargo transportation area. This is a growing use case and one that we have effectively tackled with the major consumer food company we had talked about. You may recall that in this use case, the company has been experienced fraud at all of its shipping distribution locations. Fraudsters with fake identification documents are showing up at the warehouse posing as legitimate transportation personnel and are driving away with an 18-wheeler loaded with product. Losses have been dramatic for the company. In the latest development, our proof of concept pilot was so successful that this company is in the process of rolling out our technology solution to all of their fleet locations. And they have introduced us to a large coffee retailer who is having similar problems in their distribution centers. It is important to understand how consequential the issue of employment fraud is related to cargo transportation fraud. Recent study data shows that cargo freight theft has increased 430% year over year in Q3 of 2023. Further findings reveal that there were 38% more cargo thefts in the first quarter of 2024 compared to the same timeframe last year. Nearly half of those incidents occurred at warehouses and distribution centers, with an average loss of more than $210,000 per theft. While cargo thefts used to be largely centered around Southern California, the hotspots for truckload thefts have started to proliferate around the country. With the rollout of our solution to all locations underway, we look forward to sharing more news on this new partnership. In a related development, we expect to make an announcement shortly about our new partnership that is allowing a nationally recognized company to effectively validate job seekers' applicants' identity documents. This is another facet of the employment verification market vertical that we believe holds opportunities for further expansion. We believe that the channel program remains a great platform to propel volume with our partners. Sandra is working closely with the team to drive revenues through this program. We anticipate that this program will be an important contributor to our revenue growth in 2025. You may recall that I shared a quick peek at our technological advances. We are now migrating clients to our new IntelliCheck Hub, which allows our customers to access their transaction data and perform self-administrative tasks. We believe that this is an extremely important enhancement for a number of reasons. First, it allows clients to be able to gain additional insight into transaction activity. It allows them to gain keen insight into how they can improve their own internal processes. In a lightning-fast digital world, this is a crucial need. At the same time the clients realize important procedural gains, we benefit as well. Our support staff is freed from the time-consuming and costly administrative burdens, allowing them to provide more value-added service benefits. I'm pausing here to remind you that the Hub reflects a critical facet of our client relations. It demonstrates the ongoing dialogue we have with our clients that we seek their input on their evolving needs and we respond to them. This is a win-win situation. And product development is not a nice to have. It's a must as fraudsters continue to evolve their tactics to undermine identity verification solutions So must we, and we are doing that with ongoing enhancements to our ID verification platform. We are moving forward with the enhancements we mentioned that are part of our strategic focus that include new machine learning and statistical calculations to foil the latest printed physical fake IDs and the onslaught of generative AI attacks. I am pleased to report that we're seeing the benefits from my new proprietary statistical models And as previously discussed, these standards deliver a significant impact on OCR match processing, while at the same time, it gives customers another feature enhancement for their own models. Another valuable step forward in product development from IntelliCheck. With the enhancement to document liveness that is enabling physical ID documents to be presented during an electronic validation process, that uses the end user's phone, we like what we're seeing. We're seeing that the accuracy that we are known for in this enhancement that confirm if documents presented in the electronic validation procedure are physical versus printed images or simulated by pointing the camera at another screen. Given the issues that evolved as Froster utilized generative AI, we cannot underscore enough the significance of being able to recognize any edits to the user's picture that appears on the front of the ID. It's a cat and mouse game, and we remain diligent on staying one step ahead. We continue to invest in product and enhancements understanding that it is critical to me in our position as an industry leader in identity verification. Over the course of the past two years, we have invested approximately 8.8 million in R&D related to product development. Additionally, we have invested approximately 2.2 million in the transition from Azure to AWS. This has been a capitalized expense with a big lift largely completed. As a reminder, we utilized outside consultants to get the work done quickly and efficiently and anticipate the cash outlay for the work is largely behind us. Our 90 plus percent gross margins positions us well going forward and we anticipate generating cash next year driven by accelerated top-line sales growth. As you can see, we believe we are making substantial progress on a number of fronts. It is our sense these developments were served to accelerate our revenue growth as we enter 2025. I will now turn the call over to Adam.