Intellicheck, Inc.

Greetings, and welcome to the IntelliCheck Q1 2026 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 wants to require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce our host, Gar Jackson of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for IntelliCheck's first quarter 2026 earnings call. Before we get started, I will take a moment to read our 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 call, words such as will, believe, expect, anticipate, encourage, and similar expressions as they relate to the company or its management, Identify forward-looking statements. These 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 update or alter its forward-looking statements, whether resulting from new information, subsequent events, or otherwise. Additional information concerning forward-looking statements is contained in the violence of the SEC. Throughout this call, we may reference certain financial metrics that have been rounded for use in discussion. Statements made today are as of May 12, 2026. Management will use the financial terms adjusted EBITDA and adjusted gross margin. Please refer to our press release issued this afternoon for further definition, reconciliation, and context for the use of these terms. We will begin today's call with Brian Lewis, IntelliCheck's President and Chief Executive Officer. He will be followed by Adam Shragowitz, our Chief Financial Officer. 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 it over to Brian.

Thanks, Gar, and good afternoon to everyone, and thank you for joining us today. I'll start by giving something I always try to do, direct about what drove the quarter, which was impacted in part by the macro environment. Then we'll get to the numbers that show significant EBITDA growth, marking our fourth quarter in a row of positive EBITDA and our third quarter in a row of positive net income. The first quarter of 2026 played out against one of the more challenging macroeconomic backdrops that we have seen in several years. The military conflict in Iran, which intensified in the first quarter, created a genuine economic ripple effect across virtually every sector of our economy. Oil prices surged, pushing gasoline prices toward $4 and above in many markets. This is one of the factors that impacted consumer confidence and consequentially affected our retail customers. Additionally, as evidenced by reporting on multiple news outlets, mortgage rates climbed to their highest levels in seven months as financial markets absorbed geopolitical shock, and consumer confidence which I just noted is already trending in the wrong direction, deteriorated further. And inflation, which had appeared to be normalizing at around 2.4% early in the quarter, reaccelerated sharply to 3.2% year over year in March. For IntelliCheck specifically, these forces created headwinds in three of our verticals. In retail, that is now approximately 30% of our revenue, consumer bell tightening continues to weigh on transaction volume. Our retail clients scan fewer IDs when foot traffic declines, and foot traffic clearly slowed in Q1 for our customers as consumers pulled back in addition to the normal Q4 to Q1 holiday decline. In automotive, U.S. auto sales are estimated to have fallen 5% to 6% year-over-year in Q1 as high borrowing costs record vehicle purchases, and economic uncertainty kept fires on the sidelines, impacting scanning volumes at some of our auto dealer clients. On the title insurance side, the combination of rising rates and geopolitical uncertainty slows mortgage origination activity. Despite all of these economic factors, I am pleased to report year-over-year. I believe this underscores the wisdom of our decision to expand into other verticals. Our first quarter revenue is approximately $5.5 million versus $4.9 million in Q1 2025. We delivered adjusted units of $935,000 representing a margin, EBITDA margin of approximately 17% versus our adjusted EBITDA of negative $17,000 a year ago. This marks our fourth consecutive quarter of positive adjusted EBITDA. This is a milestone that I believe speaks directly to the operating leverage we have built into this model. We have earnings per share of 3 cents, marking our third quarter in a row of profitability. and ended the quarter with over $10 million in cash and zero debt. I will tell you, delivering 13% revenue growth in this macro environment with 17% EBITDA margins is something I am genuinely proud of. Now, let's walk through our vertical performance. Banking and lending remain our core growth engine and represented over 50% of our quarterly revenue growing strongly in Q1. This makes CHIP has fundamentally changed the resilience of this business. Our largest regional banking client with a three-year contract valued in the very high seven figures is now fully implemented throughout all their bank branches. The team is not just ramping volume. They're in active conversations with us about expanding the use of IntelliSET's top technology in additional use cases and departments. The ROI of fraud prevention at these banks is not subtle. Account takeover losses average approximately $2,300 per incident. Some clients tell us they experienced monthly fraud losses north of $40,000 before they implemented IntelliCheck. The payback on our technology is often measured in days, not months. And in addition to stopping fraud, we also help them onboard good truck significant and valuable attribute that I believe is frequently overlooked. Beyond our major bank relationships, our new desktop delivery method is opening meaningful new doors with smaller banks and credit unions. This clearly reflects the benefits of our desktop delivery of our core services. This delivery services requires no integration with the bank's core platform and implementation is immediate. You may recall that credit unions and smaller banks have historically been hampered by long technology integration queues with their core technology providers. I am pleased to report that we are seeing strong inbound interest for our desktop product that is designed to address this issue. We believe this product has the potential to materially expand our addressable market without requiring a third party to facilitate the growth. Implementing this desktop technology, we have signed three new clients with several others in review. While these are smaller deals, they can get up and running quickly. That being said, bank platform partnerships are also very important. I'm also excited to share that our new partnership with Alloy is starting to generate early traction. Our partnership here is a valuable one given it is one of the leading identity and fraud prevention platforms in the banking and fintech space. Their customer network is substantial. We believe being embedded in their platform significantly reduces buying friction for institutions already operating within the alloy ecosystem. These kinds of strategic partnerships are an important element in how we grow this component of the banking vertical from here. Retail represented approximately 30% of 2025 revenues. as I discussed earlier, was certainly challenging during the first quarter. We saw year-over-year declines in scanning volumes that was similar to the sequential period last year, and we believe that it is entirely consistent with the consumer confidence and macro headwinds I described. Through our active diversification efforts, we are no longer dependent on retail for growth. If consumer sentiment improves as the macro picture settles, Any recovery in retail volumes will be an incremental upside for us. Also, as I previously discussed, our title insurance vertical was impacted in Q1 by the mortgage rate environment. However, I want to call out a milestone that I am genuinely excited about. First American Title successfully launched their digital e-commerce identity verification capability in Q1. You may remember we told you this was coming on the last quarter's call. This is a meaningful expansion of how our technology is embedded in their platform. It is exactly the kind of deepening of the relationship that drives long-term value. When rates normalize and real estate volumes recover, we believe this vertical has substantial upside potential. We're also seeing growth in our other verticals. Our age-related and background check The nationwide rollout with our food manufacturer client addressing cargo freight fraud is showing good progress as well. That account is now running in the low six-figure annual contract value range. Additionally, our foreign auto manufacturer clients and their supplier networks continue to expand. In the stadium concessions market vertical, we added a few additional clients, although these are starting at very low volumes. On the product and technology front, our team continues to execute at a high level. As I shared with you, our desktop application is gaining solid traction. We are also seeing progress with our mobile SDK, cloud reporting console, and portal delivery methods. As a reminder, our customers like our hardware-free solutions that are quick and easy to implement. And here's the thing I keep coming back to. Our core differentiation is unique and it is durable. We can verify the authenticity of a government-issued ID in less than a second, 99% decisioning. We do this by checking against the exact FAR code specifications embedded by each state DMV at the time of issuance. Keep in mind that no competitor has access to these specifications. This is because we continue to be the heftiest test lab for state DMV systems, a relationship we've had for more years than I can count. This exclusivity is key as we see threats continue to evolve at an extraordinary pace. AI-generated fakes are becoming more sophisticated every quarter, which I believe will become an increased problem for our competitors. Synthetic identity fraud skyrocketed 300% in just the first quarter. Deepfake-driven fraud was up over 1,000%. Visual template checks, which is what most of our competitors rely on, cannot stop these fakes. We can't. That is not going to change, and it gets more valuable every year. Our marketing initiatives are continuing to make a difference as they continue generating the activity. The agency we brought on board is sharpening our messaging and building Brad's awareness. Our IEM threat report has been the effective thought leadership piece across banking, title, automotive, and the cargo freight audiences. This original state of documenting the fraud trends we observed in 2025 positions us as a credible source of industry data and intelligence. Our podcast content, white papers, and industry conference presence continue to build IntelliCheck's brand as the definitive authority in real-world ID verification. In closing, I'm continuing to be mindful of how 2026 is unfolding. Clearly, the macro environment remains uncertain. Area of conflict, elevated interest rates, and consumer caution are real factors that will continue to influence some of our verticals in the near term. We are watching that carefully every day. But here's what gives me added confidence. Our banking and lending vertical is driven by fraud prevention. This is mission-critical, non-discretionary spending for every bank and credit union we work with. This category does not soften in a difficult economy. If anything, it becomes more urgent. Keep in mind, this is now more than half of our business. We believe that we have opportunity to continue growth with our existing clients in addition to signing new clients. We believe that we are at the inflection point in our business model to profitability. At our current run rate, virtually every incremental revenue dollar flows meaningfully to the bottom line. We have over $10 million in cash, no debt, and a product that we believe genuinely cannot be replicated. Without providing formal guidance, we believe EBITDA margins will remain positive and lead to potential acceleration in the back half of the year. Looking forward, We believe that we are well-positioned to deliver positive income for the full year of 2026. This would be a significant milestone for this company. We also continue to advance our investor-relation initiatives and expect to participate in a number of upcoming investor conferences, including Disability Microcap Virtual Conference next week. In June, we will be participating in the RBC Financial Technology Conference in New York the DA Davidson Conference in Nashville, and the Planet Microcap Showcase in Las Vegas. These events provide valuable opportunities to further expand the awareness of IntelliCheck and communicate our strategic priorities and long-term growth objectives. In addition, they provide valuable platforms to keep you, our shareholders, informed while at the same time engaging with the broader investment community. The headwinds we face in Q1 are real, but so is the trajectory we are on to maintain and expand profitability. We are a fundamentally different company than we were 24 months ago, and I am confident in where the business is going. Now I will turn it over to Adam. Thank you, Brian. We are off to a strong start in 2026, and I will take a moment to put that in context. Ryan described the macro backdrop, and against that backdrop, I'm genuinely pleased with what we've delivered. Total revenue for the first quarter of 2026 increased $630,000, or 13%, to $5,524,000, compared to $4,894,000 in the first quarter of 2025. Fast revenue grew $646,000, or 13%, to $5,514,000 from $4,868,000 in the same period of 2025. The growth was driven especially by financial services and banking, where identity fraud pressures remain elevated and customers continue to deepen the use of our platform. Growth profit as a percentage of revenues was 91% in the first quarter of 2026, compared to 89.7% in the first quarter of 2025. a 130 basis point improvement. On an adjusted basis, excluding non-cash amortization of capitalized software costs, adjusted gross profit margin was 93.4% compared to 91.8% in the prior year period, representing a 160 basis point improvement. Both measures reflect the continued operating efficiency we have achieved with our cloud infrastructure. Our cost of revenue, excluding amortization, was $362,000 in Q1 of 2026, down from $399,000 in Q1 of 2025, even as revenue grew 13%. Non-cash amortization allocated to cost of revenues was $137,000 in Q1 of 2026, compared to $103,000 in Q1 of 2025. As previously capitalized software development costs continue to amortize through the income statement. As we noted on our last call, our capitalization of the software cost has declined to near zero levels, which means this amortization headwind will diminish over the next several years as earlier vintage capitalized assets roll off. Operating expenses decreased $257,000, or 5%, to $4,483,000 in the first quarter of 2026. compared to $4,740,000 in the first quarter of 2025. In three of the past five quarters, including the last two, operating expenses have declined year over year, while revenue grew at double-digit rates. SG&A expenses decreased $211,000, or 6%, to $3,242,000, compared to $3,453,000 in Q1 of 2025. The reduction reflects continued discipline across personnel cost, marketing spend, and professional piece. R&D expenses decreased $46,000, or 4%, to $1,241,000 from $1,287,000 in Q1 of 2025. I would note that R&D costs are now almost entirely cash expenses, given the near elimination of software capitalization. The gap number and the cash number are effectively the same. which makes our R&D line more straightforward to interpret than in prior years. As a result of these dynamics, we reported operating income of $542,000 in the first quarter of 2026 compared to an operating loss of $348,000 in the first quarter of 2025, an $890,000 year-over-year improvement at the operating line. Other income was $94,000, primarily consisting of interest earned on our cash balances, compared to $30,000 in the prior year period. The increase reflects both the higher average cash balance we carry and favorable short-term rate positioning. Net income for the first quarter of 2026 was $636,000, or three cents per diluted share, compared to a net loss of $318,000 or two cents per diluted share in the first quarter of 2025, a swing of nearly $1 million year over year. This marks our third consecutive quarter of positive net income. The weighted average diluted share count was 20.9 million for Q1 of 2026 compared to 19.8 million for Q1 of 2025. Adjusted EBITDA for the first quarter of 2026 was $935,000 compared to a loss of $17,000 the first quarter of 2025, representing a year-over-year growth of $952,000. This is our fourth consecutive quarter of positive adjusted EBITDA, and I want to remind everyone that Q1 is seasonally our softest quarter, given the absence of a certain holiday retail uplift we see in Q4. To put that in perspective, one year ago, we were essentially at break-even on an adjusted EBITDA basis in Q1. This quarter, we generated nearly $1 million and delivered an adjusted EBITDA margin of approximately 17%. Depreciation and amortization was $193,000, and stock-based comp was $200,000 in Q1 of 2026, consistent with recent trends. For the first quarter of 2026, we recognized no income tax provision. We continue to carry a full valuation allowance against our net deferred tax assets, GAP requires as long as our three-year cumulative taxable income position remains negative. As I mentioned on our last call, the prior year's losses keep that cumulative test negative for now, but the window is improving as each profitable quarter is added and loss periods roll off. At March 1st, 2026, the company had cash and cash equivalents totaling $10,062,000, an increase of $412,000, from $90,650,000 in December 1st, 2025. The first quarter is typically a period of cash usage given the seasonality of our business, so generally operating cash flow of $444,000 in Q1 is a strong result. We have no outstanding debt, which means our balance sheet is entirely equity and business finance. Working capital at March 31st of 2026 was $11,119,000, Total assets were $27,109,000. Stockholders' equity was $21,533,000. Accounts receivable grew to $5,740,000 at March 31st compared to $3,365,000 at December 31st. This increase is largely a timing artifact of our Q1 billings pattern. Annual contracts that were new in the first quarter generated substantial invoices in the first weeks of the year, collection, sometimes completing in Q2. Our allowance for credit losses remain stable at $157,000. Our capital requirements remain modest, capital for only $33,000 in Q1 of 2026. Our product improvements are expenses incurred rather than capitalized, and our infrastructure runs on major cloud platforms rather than owned hardware. We are encouraged by how the year has started. combination of consistent revenue growth, improving margins, and the first profitable Q1 in company history tells us that the operating model changes we've made are working. Looking ahead, we expect gross margin profile to remain in the 90% to 91% gap range, with adjusted gross margins continuing to run the 92% to 93% range. The non-cash amortization of capitalized software costs will remain a small headwind in the near term, but will diminish over time. On the expense side, we remain committed to growing operating expenses at a rate below our revenue growth rate. That discipline is what drives the operating leverage we are seeing. Finally, I want to briefly address capital allocation. Our cash position gives us flexibility. We are investing in the business, especially in marketing, in sales capacity, customer success, and in product at a level we believe is appropriate given our growth targets. We will continue to regularly evaluate how to deploy that capital ways that create long term value for shareholders. I'll now turn the call over to the operator for questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please. We'll recall for questions. And the first question comes from the line of Mike Glendahl with Northland Securities. Please proceed.