Q4 2020 Intellicheck Inc Earnings Call
Greetings and welcome to the Intel of check fourth quarter and year end 2020 earnings conference call.
And what should require operator assistance. Please press star zero on your telephone keypad of question answer session will follow the formal presentation.
As a reminder of this conference is being recorded if some of my pleasure to turn the call over the Gar Jackson. Please go ahead.
Thank you operator, good afternoon, and thank you for joining us today for the intelligent <unk> fourth quarter and full year 2020 earnings call before we get started I will take a few minutes to read the forward looking statement certain statements on this conference call of 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 of 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 ex.
Patients and beliefs about future events and 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 the 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 of the company's filings of the Securities and Exchange Commission statement.
Statements made on today's call are as of today March 16th 'twenty 'twenty. One management will also use the financial term adjusted EBITDA in today's call. Please refer to the company's press release issued this afternoon for further information and reconciliation and context for the use of this term.
I'll begin today's call with Brian Lewis Intelligence ex Chief Executive Officer, and then Bill White until Jack's Chief Financial Officer, who will discuss the Q4 and full year of 2020 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.
Thanks, Karen and welcome everyone to our fourth quarter and fiscal year 2020 earnings call. We continued to show solid growth with total revenue for fiscal year, 'twenty 'twenty up 40% over 2019, and SaaS revenue of 54% during the same period during the fourth quarter total revenue was up 6% over Q4.
For 2019, but more importantly, SaaS revenue was up 18% over the same period sequentially Q for SaaS revenue was up 23% versus Q3 2019.
We believe that given COVID-19 and the returns of Lockdowns in portions of the country throughout the year those numbers bode well for the future let me explain.
During 2020, we continued to add clients and retailers and existing clients continued to add additional use cases, all through the lockdowns partial reopening the per.
Press levels of retail traffic and returns to more of Lockdowns in some markets.
Throughout the pandemic, we could immediately see the impact of closings and openings through transaction accounts from.
From June through December.
When some places began to partially reopen, albeit with limited traffic and typically occupancy of restrictions we saw an increase in transaction counts of 190%.
Well. This is an impressive sign of recovery from the pandemic isn't a complete recovery versus pre pandemic levels.
The brand transaction volumes for Q4, 2020 versus Q4 of 2019 were down an average of 20% as many regions of the country, we're still not completely open whereas limitations on the occupancy resulting in limited traffic.
Even with this decrease in transactions SaaS revenue was up both sequentially and year over year. We believe the increase was due to a number of factors.
First would be the new clients, we signed over the year end of the additional use cases employed by existing clients over the course of the year. We executed 32 integrations that were either for new clients for expanded use cases with existing clients. In Q4, we had 10 companies either begin of pilot.
Sign on as new or an existing client expanding of use case, considering that historically implementations have been limited during the fourth quarter peak holiday selling season. This was a good result.
With our standard focus on E Commerce transactions, we had two existing clients add faithful biometric two of their person not president authentications during the fourth quarter. We initiated two pilots that had subsequently become clients. One was for farm supply of store with over 120 locations that is using our I T Chek.
Online fraud solution.
The second was the bank consortium of owned company that helps financial firms detect and prevent fraud. They started with our no integration web product and are now working to integrate our API into their mobile apps and other products.
During the quarter. We also sign of credit unions located in L. A demonstrating that we continue to expand adoption of our technology solutions in the financial services market vertical beyond banks. We also continue to expand as the new markets with additional uses for our fraud stopping technology.
During the quarter, we signed a California based company that does tenant screening for rental leases. This is the new vertical market for us and one that not surprisingly is the target for identity theft I think this underscores what I've been saying the use cases for where you will need to prove you are who you say you are our ever expanding.
The second driver of growth is the expansion of the online or a person not present space for.
June through December we saw of 93% increase in these transactions with 15 clients either adding the online solution, where the addition of new clients that are only e-commerce focused.
One retailer who has been with us for a long time, so of 16% increase in volumes during that same six month period.
Driving growth of the topics I spoke with you about last quarter.
May recall I shared with you my strategic vision that including the investments to build on the growth we have achieved it.
They have taken those initial steps in sales and marketing.
In January we hired a VP of marketing of needed function of telecheck had been lacking.
The C. P has already had an impact on our messaging website and more importantly, driving inbound leads our website has been updated to get our key messages across better and faster and will continue to be refined as their of messaging of evolves.
The sales team now has improved marketing pieces, and we'll be adding video to the arsenal to help them sell.
I also spoke about hiring salespeople to handle both inbound leads and more importantly extend our outreach, particularly within newer markets when.
When you have the senior Vice President of fraud prevention for one of the largest banks of the world, calling your product and I quote of true game changer, and stopping fraud top five all time and fraud prevention tools, we put in place that means it's time to really put the pedal to the metal to do that we need more sales people we have begun the process.
The test and have already started hiring high caliber talent.
We will also be hiring people with proven strategic account management experience, while our large financial institutions continue to expand use cases, I would like to see it happen faster.
We believe that people, who understand how to strategically plan and execute strategies to build on existing accounts are key to making that happen.
Additionally, as I said on the last call paid placement is becoming the norm and we will be spending money judiciously to get our message out.
We believe that marketing will be of key factors that will help us expand into new markets and as demonstrated by the new sectors. We have entered into in the past year. It is part of our growth strategy.
2020 was a heck of a year I pray will never be repeated I'm sorry for those on my team and those on this call who have lost loved ones.
At the same time I'm seeing encouraging signs that we are turning the corner with.
With the vaccine, becoming more widely available hopefully we are that much closer to the herd immunity of foot.
Fully open economy, and normalized retail traffic in the meantime, well you've seen and continue to see is that identity theft and fraud doesn't stop for a pandemic and is served to raise consumer and market awareness of the total it takes.
Ultimately the day to tells the story and.
In the past year, one of five Americans fell victim to identity theft or attempted identity theft.
According to a new Harris research poll identity theft has become top of mind for three and five of America's This year and 60% expect they will suffer financial losses victims of identity theft. The.
The need is there and we remain confident we have an important role to play.
So we will continue to work with new and existing clients to expand the ways. We can stop identity theft with our proven technology solutions.
In closing I'm looking forward to 2021 and what we believe is the promise and opportunity. It holds for Intel of check.
I will now turn the call over to bill to discuss our financial results in more detail.
Thank you, Brian and good day to our shareholders guests and listeners.
I'd like to discuss some of the financial information that was contained in our press release for the fourth quarter and fiscal year ending December 31 2020.
I'll begin with our fourth quarter results.
Revenue for the fourth quarter ended December 31, 2020 grew 6% to $3 78000 versus 2.897 million for the same period last year our.
Our SaaS revenue was approximately 3.012 million for Q4 of 2020, and 18% increase from 2 billion 557000 in Q4 of 2019 and grew 23% sequentially over the third quarter of 2020.
Gross profit as a percentage of revenue was 92 six per cent for the quarter ended December 31, 2020 compared to $88 eight per cent for the quarter ended December 31 2019.
Operating expenses the consist of selling general and administrative and research and development expenses for.
The 4% or 110000 to 2.389 million for the quarter versus 2.500 million for the same quarter of net 2019.
The decrease is primarily due to reduced legal fees of sales related expenses.
The company posted net income of $1 260000 for the three months ended December 31, 2020 compared to a net income of 106000 for the quarter ended December 31 2019.
The net income per diluted share was <unk> <unk>.
<unk> net income per diluted share of <unk> in the prior period.
It's important to note that approximately 796000 or four cents per diluted share of our net income was related to the forgiveness of the PPP loans.
We received during the year.
Adjusted EBITDA for the quarter ended December 31, 2020 was 635000 compared to EBITDA of 216000 in the quarter ended December 31 2019.
Interest and other income were approximately 800 thousands of for the quarter ended December 31, 2020 as compared to 35000 for the same period in 2019. The increase is due to the forgiveness of a PPP loan of approximately 800000.
Turning now to our full 2020 year results revenue for the full year ended December 31, 2020 was up 40% the $10 7 million compared to $7 7 million for the prior year, our SaaS revenue for the calendar year 2020 was $9 3 million, an increase of 54% as compared to six.
The $1 million in the prior year.
Driven by the growth in our SaaS business growth profit as a percentage of revenue remained strong at AZ 86, 7% for the year ended December 31, 2020, compared to 87 per cent or the same period last year.
Operating expenses for the year were $9 6 million.
Compared to $9 3 million for the year ended December 31 2019.
Selling general and administrative expenses increased 4% to $5 9 million for the year ended December 31, 2020 from $5 7 million for the year ended December 31, 2019, primarily due to higher personnel costs and accrued incentive plans.
Research and development expenses were $3 7 million for the year ended December 31, 2020 and 2019.
The company had net income of 558000 for the year ended December 31, 2020, as compared to a net loss of $2 5 million for the calendar year 2019.
The net income per diluted share was <unk> <unk> versus the net loss of 16 cents from the prior year the weighted average per diluted share count where adjusted under $18 million at year end versus $15 7 million in the prior year.
Adjusted EBITDA was 329000 for 2020 in improvement of approximately $2 1 million as compared to adjusted EBITDA of a negative $1 8 million for 2019.
Interest and other income was 818000 for the year ended December 31, 2020 ex compared to 99000 for the year ended December 31 2019 of.
As mentioned earlier this increase is due to the forgiveness of the PPP loan of approximately 800000.
I'd now like the focus on the company's liquidity and capital resources.
As of December 31, 2020, the company had cash of $13 1 million working capital defined as current assets minus current liabilities of $13 4 million total assets of $24 3 million and stockholders' equity of $22 2 million.
During the 12 months ended December 31, 2020, the company generated net cash of $9 7 million compared to a net cash used of $1 million. During the 12 months ended December 31 2019.
On June 23, 2020, the company completed a public offering of the $1 769230 shares of its common stock offered to the public at $6 50 per share, resulting in net proceeds to the company of approximately $10 7 million after deducting underwriter discounts and commissions and <unk>.
Operating costs paid by the company.
<unk> intends to use the net proceeds from the operating for general corporate purposes, and working capital net.
Cash used in operating activities was 19000 for the 12 month period ended December 31, 2020, compared to $1 8 million for the same period in 2019.
Net cash used in investing activities was 415000 for the 12 months of 2020 compared to net cash provided by investing activities of 22000 for the 12 month period, ending December 31, 2019, and we generated cash of $10 2 million from financing activities for the 12 months ending.
At December 31, 2020, compared to 793000 for the same period in 2019.
The company has a $2 million revolving credit facility with Citibank the secured by collateral accounts. There are no amounts outstanding under this facility. We currently anticipate their available cash as well as expected cash from operations will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12.
Months.
As of December 31, 2020, the company had net operating loss carryforwards of approximately $17 million.
I'll now turn the call over to the operator to take your questions operator.
Thank you wind up of conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from the queue for participants using speaker equipment may be necessary to pick up of handset before pressing star one one moment. Please while we poll for questions.
Our first question today is coming from Mike Grondahl from Northland Securities. Your line is the alive.
Yeah. Thanks, guys.
Hope all is well.
The initial comments on January and February just kind of how that's trended in the new year.
And then secondly, I think of you mentioned on the E Commerce side, maybe two clients or customers using the facial.
By all metrics.
Are they paying a premium for that or can you kind of help us understand that offering a little bit more.
Yeah, So I guess working backwards right I can remember it Mike.
So yes, there is the premium that's paid for the the facial biometrics. So it's an upsell to them.
Say that a lot of people.
Are interested in the facial biometrics, but it depends on the use case it depending on the on how much friction they want to introduce into it it tends to be more for things like of banking account opening or applying for.
Sort of a substantial low those are the types of things that people are using it more for than just you know an authentication. So it's a it's one of the things that I think people want to see that you have but I don't see it being used very much.
Other than for maybe the applications, where the authentication isn't as accurate or certain at the hours. They use it as you know of need almost to eat out bad guys, who might want my might not want to get their picture taken.
In terms of volumes, we've definitely been seeing an increase over time.
I wish the world was more open than it is in the vaccine was more out there. So you know I'm disappointed that we're not as open as we we had you know what I'd love is today, but I am also very excited about the fact that we continue to add clients.
So we're seeing growth even with places that are still partially locked down or have occupancy of restrictions.
Got it and then maybe just as the follow up I think I caught the 32 integrations in 2020.
And then I think the 10 new pilots in for Q1.
Incremental to that 32.
Anything you can give us on sort of new customers or new use cases.
And that yeah. So.
Yes, so it wasn't 10, new pilots in our in the period. It was 10 new.
People coming on two of them are pilots most most of our clients don't pilot much anymore.
Because it's easy for us to give them tools to see how well it works.
So for the most part of those were the large integrations that required you know our tech team to talk to the air Tech team to connect it doesn't include some of the things that we do that do not require.
Any integration so if somebody is using us.
And mobile device or other things I don't count those as the large integrations, one because theyre not.
Usually as large in terms of revenue.
But it also.
It doesn't take a lot to get those things going you know that's more like law enforcement.
Smaller jewelry stores bars.
Bars candidates places things like that.
Got it Okay, Hey, thank you guys.
Thanks, Mike.
The next question today is coming from Kara Anderson from B Riley and company. Your line is now live.
Hey, guys. Thanks for taking my question.
Thanks Kara.
Just for you can expand on where you stand with the sales of investments a little bit more.
In terms of how many people you've hired the bar what their expected ramp is and then the expectation for the number of hiring for.
Yeah.
So far we've hired one.
I'm, probably going to be adding three sales people in total one account management person to add to what we have on the team.
Obviously that'll be rolled out.
Part of it is I don't want of bringing so fast people. So fast I can't train them, but you know what we are seeing is that we're able to get people from the space.
Who I think will ramp very quickly.
You know people, who are used to dealing with the you know the efficacy of the other systems that are out there and they come in and we let them play with what we have and they see how accurate. They are we are I'm sorry.
And they tend to be very excited to come onboard. So I think the the fact that we're going to hire people who understand the identity authentication space.
We'll help with that ramp period.
Mhm, and then I think last quarter you guys put in.
The expected investment kind of growth rate.
But the difference since it had been the parents were correct me if that's the wrong. If it was 10 to 15 per cent for two.
'twenty, 'twenty, one and whether or not that still holds true.
I think that as I looked at the market potential we had out there.
And what I feel we're leaving on the table by not having the more salespeople and more brand market awareness I think the I'm looking to increase that you know the.
The spread out over the year of you know I think we've been very smart in terms of we don't just go spend money Willy Nilly, but I do think given the amount of clients that we have who are saying things like that the D. P of fraud that I quoted.
The who will act as references for US I think it's really time for us to kind of match some of the sales for sizes of our competitors because we do have in my opinion of much better way much more a certain way of authenticating a person becoming.
Much more important and a person not president of environment as many things do go online.
We are of much simpler to put in place and to use much easier for somebody to.
Scan the back of the license then take a photo finish what I said you know anybody on the call of trying to take a photo of your license without the layer on it that glare is going to get in the way of authenticating anybody who's trying to authenticate through Templating. We don't have those issues and that provides certainty I think it's going to help us really grow but I need the.
People to get that message out there.
Mhm.
Got it and then just one more for me.
Just thinking about the first quarter.
You did comment about volume there, but should we expect that you can growth through the seasonality of the <unk> given the dynamic in some day.
Allison.
The question the opening in December and just the general holiday shifts that we thought of that moved online this year versus in store.
Well you know we did grow in Q I mean, that's the thing that gives me a lot of optimism about the future. You know there were a lot of places that once it's been pretty regressive.
You know the Lockdowns shutdowns of whatever you want to call them during that period, you know as they saw Covid cases rises yet we still grew and at the same time, we still signed new clients, who were no I'd say barely active in and in Q4 and the fact that you know as I said same store.
Or you know scans.
When I look at you know clients that were fully up and.
In 2019 versus you know 2020 of the fact that their scans for still off even with the partial openings 20 per cent.
If that goes back to normal.
That I think bodes well for us and I would assume that also anybody that knew was signed on there probably of depressed.
Floor of traffic as well so I'm looking for the you know hopefully retail comes back as everybody gets vaccinated and you know it feels comfortable going out but at the same time, we're obviously focusing on making sure that all of our clients understand how to use our digital channel products too.
The indicate when the person isn't there.
Thank you for that and just one more for me.
And I'm sorry, if I missed this but did you talk about the pipeline outlook. Some day for 2021 versus the year ago.
Are you talking about what we have in terms of in terms of integration Q and those types of things.
Yeah.
Yeah. It's it's it's the same we it seems as much as pretty much as soon as bill and his team move somebody off we've got somebody else coming in so the pipeline has stayed consistent.
You know my from my only goal now is to make sure as we're bringing in new salespeople am I really tax bills implementations team capabilities by.
By bringing in more people faster.
Kind of thank you.
Thank you.
Thank you. The next question today is coming from Scott Buck from H C. Wainwright a lot of is that of life.
Hey, Good afternoon, guys just a couple from me first.
Looking at our 2021 and 2022 is it safe to assume that a lot of the new clients coming on or are no longer kind of the legacy brick and mortar retailers, but it's a lot more of the banks the credit unions of the specialty lenders and maybe somebody you know call centers.
And if that's the case.
Have you kind of exhausted the the retail side.
I'd say, it's a combination of of all of the above and then I would also say in the way shape or form of we exhausted the retail side.
Our are our clients and our bank partners. If you will the ones who issued the white label credit cards still have plenty to go and that's where a lot of our pipeline comes from is you know of.
A lot of it comes from them and then of a lot of it comes from the sales and the new accounts coming in from our sales force.
But it is a combination of a.
The new markets.
The the company that's checking all of you who would you say you are when you Wanna remotely get that leased.
The two traditional stores, where you are walking in and applying for stuff and then new financial services firms that need to open accounts and then thankfully we still have a lot of business that's coming from our existing large bank clients who are for.
Finding new areas within their organization to to use us. So it's you know I like the fact that.
While we still have plenty of runway with the existing kind of retail credit card space, We're broadening who we're selling to and how we're selling.
To make sure that were across a much broader spectrum of clients.
Great. That's a that's helpful. Brian I'm curious do you know as you add some of these new markets should we expect the smoothing of the seasonality.
Yeah.
Yeah.
I guess I don't have enough data to say you know some of these markets are seasonal in the euro.
How they are.
But.
Got it.
And I guess, if we're going into things that are not related to holiday shopping seasons, more and more I would say yes.
How quickly that happens I'm not sure.
Right, Okay, and then last one.
This is the third quarter in a row, where even the gross margins of Ryan you know meaningfully higher than the 85 per cent target should we start to look at maybe bumping that up for 'twenty, one and 'twenty 'twenty two or are you guys still kind of directing people towards 85 per cent.
Yeah, I think like we liked the deal.
We were.
Comfortable with that I don't know Bill if you want to comment on that.
We didn't have really much in the way of hardwood or Scott you know so well.
From a.
From a <unk>.
Our mixed product perspective.
I still think 85 is a is a good number you know its a conservative number but I think it's a good number to go with.
Great guys I appreciate the time.
Thanks Scott.
We reached the end of our question and answer session I'd like to turn the floor back over to management for any further of closing comments.
Well I just want to thank everybody for tuning into the call. One of thank my team for I think doing an excellent job.
During what has been you know a very trying year for all of us and I truly do look forward to 2021 I was able to get my vaccine and I feel good and I'm happy about that and I Hope you all stay happy and healthy and good and I look forward to when we can all travel again.
And so many of the people that are on this call that I haven't seen in almost a year I look forward to seeing again. So thank you all very much.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.
Yeah.