Q1 2022 Intellicheck Inc Earnings Call
[music].
Operator: Greetings and welcome to the Q1 2022 earnings call.
Operator: At this time all participants are in a "listen-only" mode.
Operator: A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: Please note this conference is being recorded.
Operator: I'll turn the conference over to your host Gar Jackson of IR you may begin.
Gar Jackson: Thank you, operator. Good afternoon, and thank you for joining us today for the Intellicheck First Quarter 2022 Earnings Call. Before we get started, I would make I will take a few minutes to read the forward-looking statement.
Gar Jackson: Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 19, 95000. When used in this conference call words, such as well 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.
Gar Jackson: As well as, I didn't imply 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.
Gar Jackson: Any projection or forecast they are inherently susceptible to uncertainty and changes in circumstances. 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.
Gar Jackson: Additional information concerning forward looking statements is contained under the headings are 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 June 13, 2022.
Gar Jackson: 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 chart.
Gar Jackson: We will begin today's call with Brian Bush Intellichecks Chief Executive Officer, and then Jeff Ishmael, Intel Jack's New CFO, who will discuss the Q1 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 I'll turn the call over to Brian.
Brian Bush: Thank you. I'm very pleased to begin the call today by welcoming Jeff Ishmael, our new Chief Financial Officer. Jeff is a very operationally focused CFO with extensive SaaS experience and was the founding CFO [inaudible] where as employee number seven he had an instrumental role in the company's success.
They later sold to Blackberry for 1.4 billion. This is followed by his role as the first CFO of Obsidian Security another SaaS-based startup that was founded by key members of the [inaudible] team.
Brian Bush: In addition, as Jeff's extensive SaaS-focused financial experience. He also brings extensive operational expertise having overseen significant organizational functions included business operations, business intelligence, legal, and HR.
Brian Bush: I'm very excited to have him on the team.
Brian Bush: Before getting into our first quarter results I'm going to take a few minutes to give some additional color to our recent restatements that led to the delay in reporting our Q1 results.
Brian Bush: During the first quarter of 2021 Intellicheck employees did a cashless exercise of incentive stock options.
Brian Bush: Due to an isolated administrative oversight, resulting in part from the change in payroll providers. The company inadvertently did not limit payments to taxing authorities related to the shares surrendered for tax purposes.
Brian Bush: This inadvertent administrative oversight was only recently discovered and resulted in an understatement of liability for surrender chairs and an overstatement of equity on the company's balance sheets.
Brian Bush: Oversight is being recorded and is at 1.244 million liability on the balance sheet as liabilities for shares surrounded on the March 31, 2022 and December 31st 2021 balance sheets.
Brian Bush: The company intends to rectify the liabilities in 2022.
Brian Bush: In conjunction with your issue above the company determined that certain participants associated options awards, no longer qualifies as equity rewards, but rather as a liability. Resulting in an additional liability of 141,000 for the three months ended March 31, 2022 versus the prior year period.
Brian Bush: This change in classification to liability resulted in an adjustment to the first quarter of 2021 equity compensation expense, increasing it by 3.56 million.
This change in classification to liability resulted in an adjustment to the first quarter of 2021 equity compensation expense, increasing it by 3.56 million.
Brian Bush: As a result of the first quarter 2021 restatement SG&A expenses related to equity compensation decreased for the three months ended March 31, 2020 by $3.95 million compared to the same period of 2021.
Brian Bush: To ensure that this type of narrow isolated incident does not happen in the future, the company has engaged a nationally recognized fintech companies specializing in managing employee stock option plans to coordinate the management of transactions by employees with respect to exercising their stock options.
And he has engaged a nationally recognized fintech companies specializing in managing employee stock option plan to coordinate the management of transactions by employees with respect to exercise their stock options.
Brian Bush: In addition, as a further shape the future cashless exercise of stock options would be settled by the sale of its surrender chairs and will be administered by a third party provider.
I'll be administered by a third party provider.
Brian Bush: The company will not be involved in a cashless exercise transactions for the remittance of the tax proceeds and tax authorities on behalf of employees going forward.
I've employees going forward.
Brian Bush: As a reminder, these restatement amounts were predominantly noncash, had no impact on revenues, or EBITDA and again we had it put safeguards in place and an engaged third-party specialist to administer and advised on the equity compensation plan.
Brian Bush: Turning now to our quarterly results I will share the highlights with you and then Jeff will go into further financial detail later in the call.
Brian Bush: Total revenue for the quarter was $3.395 million with SaaS revenue at $3.35 million. SaaS revenue was up 21% over Q1, 2021 and down 10% from Q4, 2021. I would remind everyone that generally for our retailers are using our products either directly or through a sponsoring bank.
Through a sponsoring bank.
Brian Bush: Transaction volume security in Q4, and 21% of volume of cures occurs in Q1, so the seasonality dip is expected.
Brian Bush: Gross profit margins remained healthy at 90.7%.
Brian Bush: As we look at what happened during the quarter I believe that the results show that, number one, clients continue to find new uses for our products. Number two, we continue to expand in our core markets and number three we are continuing to find new markets that need our services.
Brian Bush: Looking at our financial services clients, you're seeing strong progress with financial services company number three.
Brian Bush: We are nearing the completion of the rollout to their bank branches.
Brian Bush: Current volumes and we anticipate that the branches can generate over 1 billion transactions per year.
Brian Bush: Financial services company number four is completed the rollout of the bank mobile platform where the bank employees come to you in the lobby and process all your banking needs using a tablet.
Brian Bush: You may remember that last year this client purchased a bucket of transactions that they expected it to meet their needs over a one-year period. Instead, they used up their bucket of chains options in nine months and transaction volumes with this client continue to increase.
Brian Bush: They have raised the minimum purchase for the second year of the contract by 16% with no discount for increased volume.
Brian Bush: Financial services company number seven has extended the use of our services to candidate for both document validation and facial recognition.
Brian Bush: Financial services company number eight has signed on to validate passports starting at the end of June. This is an important milestone in its financial services company and number eight becomes our second major client to commit to using our technology solution for international documents.
Financial services company number eight has signed on to validate passports starting at the end of June . This is an important milestone in its financial services company and number eight becomes our second major client commit to using our technology solution for international documents.
Brian Bush: Turning to new opportunities.
Brian Bush: Security audit at the top three banks, we spoke about on our last call continues and, as I said, it seems the larger the bank the longer the process. I have no doubt we will pass the audit.
Brian Bush: Pretty much the same across all large banks, it's just a process they have to go to.
Brian Bush: The good news is that while that's happening the bank is continuing to work with us to identify additional areas in which our services can be used.
Brian Bush: And the retail client front, I'm pleased to report another important development. Our off price retailer that started out using Intellicheck to parsing to pre-populate applications at their 3000 locations and that we just renewed for a three-year deal has completed the rollout of an additional use case at their locations. In addition to credit applications, they have now begun using us for received returns.
Agents they have now begun using extra meal received returns.
Brian Bush: They expect that this will double their previous volume and early indications show that to be the case.
Brian Bush: You may recall, I shared with you in the last earnings call that we moved this client from a pro location pricing model to a per transaction model with an 87% price increase in Year 2 and a 33% price increase in Year 3.
Brian Bush: Looking at new wins, new signs of prestigious new client and have moved them into production. This is a P E owned global media and tech giant. This company has incorporated our API into their call center software to stop account takeover for the email services they provide.
And have moved them into production. This is a P E owned global media and Tech Giant. This company has incorporated our API into their call Center software to stop account takeover for the email services they provide.
Brian Bush: Imagine, how much information a person could gain if they have access to your email. They can get banking information, credit card information, and just as importantly, password resets. They can literally take over your life.
Brian Bush: Now someone, if this client calls to reset a password they will be asked to authenticate themselves using Intellicheck software sent their phone and we validate the license.
sent their phone and we validate the license.
Brian Bush: Even though this client went live just recently we are already in discussions with them about other divisions that could potentially use us in North America with a further potential to expand internationally.
Brian Bush: In addition to this, we successfully completed our response to the New Hampshire unemployment security RFP. We've been notified of the contract award and are currently finalizing the contract.
<unk> been notified of the contract award.
Currently finalizing the contract.
Brian Bush: Not a large state when it comes to unemployment claims I believe that given the issues, many states are having with their current provider. This could become an important on-track to that market.
Brian Bush: I am very pleased to announce that we've also signed agreements with two banks to begin pilot.
Brian Bush: The first is a bank holding company headquartered in the South with almost 2800 branches. This bank plans to start with digital new account openings and will then add the bank branches. This pilot is expected to start in Q3.
Headquartered in the South with almost 2800 branches. This bank plans to start with digital new account openings and we'll then add the bank branches. This pilot is expected to start in Q3.
Brian Bush: The second pilot also involves a bank holding company and is also located in the south with over 1400 branches. This bank is going to do it in the opposite order. They will start in the bank branches and then the digital account opening is.
Brian Bush: Pilot is also expected to start in Q3.
Brian Bush: On the platform front, we continue to migrate our clients onto our new identity platform. This is giving us additional upsell opportunities like international documents.
Brian Bush: It's important to note that it's also allowing us to speed up the onboarding of clients. All of the clients that we moved over to the new platform or are new to Intellicheck had said that the APIs are very simple to work with.
Brian Bush: And on average, the implementations have been 50% faster than in the past.
Brian Bush: In response to those who have asked about the traffic coming from retailers. I could say it is very healthy and growing.
Brian Bush: To give you an accurate portrayal, I look at transaction volumes from our top 10 retailers by volume for Q1 2022 versus Q1 2021.
Brian Bush: Please note that they only looked at fully implemented retailers, so as not to skew the data with a rollout or a new use case.
Brian Bush: Based on those numbers, overall transaction volumes are up 6%.
Brian Bush: When the use cases are added the transaction volume use case goes up significantly. For example, I look at the first four months of 2022 versus 2021 for the off-price retailer I spoke about who added no receipt returned since they completed rollout at the end of April their volumes went up 36% and are growing.
Brian Bush: A lot of people still think we're primarily tied to brick-and-mortar retail, but let me remind you that is not the case.
Brian Bush: Significant growth coming from digital expansion in new markets that we're beginning to capitalize on.
Brian Bush: Again, I compare in Q1 2022 to Q1 2021.
Brian Bush: Digital transactions were up 13%. Bank transactions were up 31%.
Brian Bush: Automotive dealer transactions were up 104%.
Brian Bush: So before I turn the call over to Jeff, there's some statistics that I think are noteworthy given their impact on selling.
Brian Bush: As we review them, I am confident you will see their value in quantifying the need for our products.
Brian Bush: Research report published in 2018 put identity fraud losses at $16.8 billion.
Brian Bush: The report published in 22 to put the number at 52 billion. There's an increase of 200% in four years and the number of people impacted rose 150%.
Brian Bush: In the last year alone versus the previous year account losses in key areas like checking and savings accounts increased 73% to $7.8 billion.
Brian Bush: Account takeover losses toward 90% to over $11 billion. New account fraud rose $6.7 billion in the amount with the consumer rose 72% with an average of $1,551 loss per victim.
Brian Bush: This level of fraud is not sustainable.
Brian Bush: It is frustrating knowing that these incidents of theft could have been stopped by Intellicheck in less than 20 milliseconds.
Brian Bush: What I find promising is that I believe that the new clients we are signing, the pilots we're starting, and the number of leads that are coming to us indicate that key markets are beginning to take notice.
Let's say you're starting in a number of leads that are coming to us indicate that key markets are beginning to take notice.
Brian Bush: In closing we have added new leadership to the finance team with a SaaS experienced CFO , who knows how to drive growth, analyzed data, and has extensive operational and systems expertise, Jeff is going to be an invaluable addition to the team to help me drive the business and introduce more rigor to our financial operations.
Brian Bush: At the same time, we are continuing to see sales associates that are related industry experience and relevant relationships. During the quarter, we added two new members to the sales team with relevant experience and they've hit the ground running.
Brian Bush: I remain enthusiastic about the future for Intellicheck as we continue to expand our presence in multiple markets like automotive, banking, global email providers in age-restricted products through delivery services, while we advance as a global, fully-automated identity verification and fraud prevention company with what I believe are significant opportunities ahead of us. I will now turn it over to, Jeff.
Unity is ahead of US I will now turn it over to Jack.
Jeff Van Rhee: Thank you, Brian. I'm excited to join Intellicheck team. I believe this organization has a substantial opportunity in the identity space.
Jeff: Turning now to our first quarter results.
Jeff: For the first quarter of 2022 grew 532,000 or 19% to 3.395 million compared to 2.863 million in the same period of 2021.
Jeff: Our SaaS revenue for the first quarter of 2022 grew 577,000 or 21% to 3.353 million, 2.776 million for the same period of 2021. Gross profit as a percentage of revenues was 97% for the first quarter of 2022 compared to 92.3% for the same period of 2021. The decrease in gross profit percentage was primarily driven by higher cloud services cost and other web-based support.
Jeff: Gross profit as a percentage of revenues was 97% for the
First quarter of 2022 compared to 92, 3% for the same period of 2021. The decrease in gross profit percentage was primarily driven by higher cloud services cost and other web based support.
Jeff: Operating expenses, which consist of selling general and administrative marketing and research and development expenses were 4.547 million for the first quarter of 2022 compared to 7.281 million as restated for the same period of 2021 due to the reclassification of the options as discussed.
Jeff: Included within operating expenses for the first quarter of 2022.
Jeff: 2021 with 592000 4.545 million respectively of noncash equity compensation expense also due to the reclassification.
Jeff: On a non-GAAP basis, excluding the impact of noncash compensation expense in both periods operating expenses increased 1.219 million or 45%.
Jeff: This increase was driven by higher professional services and marketing expenses.
Jeff: The company reported a net loss of 1.468 million for the first quarter of 2022 compared to the restated net loss of 4.624 million for the same period of 2021.
Jeff: The net loss per diluted share for the first quarter of 2022 was eight cents compared to the restated net loss per diluted share of 25 cents for the same period of 2021.
Jeff: The weighted average diluted common shares were $18.7 million for the first quarter of 2022 compared to $18.5 million for the same period of 2021.
Jeff: Adjusted EBITDA for the first quarter of 2022 was a loss of 806,000 compared to a loss of 51,000 for the same period of 2021.
Jeff: Turning to the company's liquidity and capital resources. As of March 31st, 2022, the company had cash of $11.1 million working capital defined as current assets minus current liabilities of $9.7 million total assets of $23.5 million and stockholders equity of $18.9 million.
Jeff: We have a $2 million revolving credit facility with Citibank that are secured by collateral accounts. There are no anounts outstanding under this facility.
Mounts outstanding under this facility.
Jeff: As of March 31, 2022, we had net operating loss carryforwards of approximately $18 million.
Operator: I'll now turn the call over to the operator to take your questions.
Operator: Thank you and at this time, we'll be conducting a question and answer session.
Operator: If you have to ask a question, please press star one on your telephone keypad. 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 while we poll for questions. And our first question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.
Confirmation tone will indicate your line is in the question queue you.
You May press star two if he 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 while we poll for questions.
And our first question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.
Mike Grondahl: Hey, guys good afternoon. Hey, Brian. Could you restate some of the highlights about, I think it was the off-price retailer. Just some of the progress they've made and kind of some of the numbers you said about that customer?
Hum.
Hey, Brian .
Could you restate some of the highlights about I think it was the off price retailer.
Just some of the progress they've made and kind of kind of some of the numbers you said about.
That customer.
Operator: Okay. Oh, hello. Brian is your phone on mute?
Okay. Oh Hello. Brian is your phone on mute.
Oh Hello.
Brian is your phone on mute.
Brian Bush: Yes, my phone was on mute sorry, Mike. Yeah, no problem.
Brian Bush: They had been using us just for credit applications and they were getting hit with a lot of fraud on the note receive trend which is where the retailer always eats all the fraud loss. So they moved us and they're now using us for that use case.
They had been using is just for credit applications and they were getting hit with a lot of fraud on the note receive a turn which is where the retailer always eat the fraud loss. So they moved us and they're now using us for that use case.
Brian Bush: They said that that would probably double the transaction volume and as I said on the call. It appears that is the case.
Brian Bush: We renew them in Q1 for a new three-year deal. We kept them flat in the first year of it because we were working on getting this new use case. Next year, the fees go up 87% and then the third year they go up 33%.
In Q1 for a new three year deal, we kept them flat in the first year of it because we were working on getting this new use case next year. The fees go up 87% and then the third year. They go up 33%.
Mike Grondahl: Got it. Those are some big numbers and in the [inaudible] we seek returns. How would you say that offering is penetrated? Is it... Within your retailers are, you know, are you at like one in eight you have that up and running one in ten? Just sort of... very, I'd say very very few so certainly it's one of the areas that we're going after it with.
The node, where we seek returns how would you say that offering is penetrated is it.
Have you within your retailers are you know are you at like one in eight you have that up and running one in 10, just sort of aerie, we very I'd say very very few so certainly a it's one of the areas that we're going after it with.
Brian Bush: Any one of the clients that we're already in
Brian Bush: As you know, particularly the clients that we're already in because I don't have to do any work. Like we've already integrated into their point of sale system. They just need to make it work for this use case. So that's... Bruce has anyone the salespeople that covers a bank that has retailers, we're gone directly to the retailers to see, you know, what they're interested in this use case.
Bruce has anywhere the salespeople that covers a bank that has retailers were gone directly to the retailers to see you know what they're interested in this use case.
Mike Grondahl: Got it and then secondly, our financial services client number eight. I didn't completely catch what you're gonna be doing incrementally for them. Could you just highlight that again?
Our financial services client number eight.
I didn't completely catch what you're gonna be doing incrementally for them could you just highlight that again.
Brian Bush: Yeah, they've got an interest in passports and then potentially other international documents you know besides passports.
Brian Bush: So they're looking for us to authenticate things in addition to driver's licenses or state IDs, they want to be able to use international documents as well.
Brian Bush: Got it. And the things that we brought out with the identity platform with the ability to do international. Something that we couldn't do before, so this is all new use cases and opportunities that we're beginning to see because of the identity platform.
With the ability to do international something that we couldn't do before so this is all new use cases and opportunities that we're beginning to see because of the identity platform.
Mike Grondahl: Got it. And then lastly, how many integrations have you done sort of year to date and what does the pipeline look like?
Brian Bush: I should've looked at the account for what we've done year to date, [inaudible] I'd say, we're... I'm breaking out integrations to be sort of a difference between what I'd call more provisioning, where we're setting people up with our web tool and then direct integrations to somebody who is using what we call [inaudible] indirect so for the I... And before we used to complain conflate those two things really. I think it's a better thing to look at what is direct because that tends to be more high-volume versus what is a provisioning.
Or what we call ATA indirect so for the I and before we used to complain conflate. Those two things really are I think it's a better thing to look out what is direct because that tends to be more high volume versus what is a provisioning are you know which.
Brian Bush: Which can be high volume, but January sort of small/medium volume and we've got about 10 different IVN and direct implementations in various stages. Either active development we're planning.
In various stages either active development we're planning.
Brian Bush: Which is kind of consistent with where we used to be in the past.
Brian Bush: But when we completed the numbers it sounded like a bigger thing. I thought it was better to give people an idea of what is probably more revenue driver than provision.
Mike Grondahl: Got it. Okay, thank you.
Brian Bush: Thanks, Mike.
Operator: Our next question comes from the line of Scott Buck with H C. Wainwright. Please proceed with your question.
Scott Christian Buck: Hi, good afternoon, guys and welcome Jeff.
Jeff: Thank you, Scott.
Scott Christian Buck: Brian you gave us some good same store sales, you know, year over year color, 6%. Can you tell us is that above pre-COVID-19 levels or do we still have a little ways to go in terms of traffic, you know, they go back two years, I guess.
Brian Bush: I'd say, it's still slightly below not by much, though. We're getting there.
We're getting there.
Scott Christian Buck: Okay, that's helpful. And then more of a, you know, bigger picture strategic question given the current market conditions, how are you are going back and forth between reinvesting in growth in the business versus, you know trying to drive some positive EBITDA here in the near term?
How are you are.
Going back and forth between.
Reinvesting in growth in the business versus you know trying to drive some positive EBITDA here in the near term.
Brian Bush: Well, what I'd say is we did a lot of investment last year, some of it which will kind of mute the cost will be going away. Like, for example, to bring out the new identity platform, we needed to jump-start some of our development team. But I looked at that as a project that's got a beginning middle and end and then we don't need the people anymore. So to me. That's you hire outside consultant developers to do that because when it's done you just turn off their contract which is what we did in that case and all of those developers fall off of the cost side of the equation this month.
Investment last year, some of it which will kind of mute the cost will be going away like for example to bring out the new identity platform.
We needed to jump start some of our development team, but I looked at that as a project. That's got a beginning middle and end and then we don't need the people anymore. So to me. That's you hire outside consultant developers to do that because when it's done you just turn off their contract which is what we did in that case.
And all of those developers fall off of the cost side of the equation. This month.
Brian Bush: So what we're looking at right now is I think we right-sized the group last year. We had some areas in IT where, kind of, some critical roles that I felt that we were single-threaded.
Kind of some critical roles that I felt that we were single threaded.
Brian Bush: So we added people to that. The other thing that we've done that was, you know, new expense for us. We never had a marketing team before and we built that out and we're spending money on marketing and that is certainly paying off. We're seeing fantastic leads coming in across the spectrum of different things that we do. You know, I will say that the media giant that we talked about came in as an inbound lead because the marketing works so well.
That media giant that we talked about came in as an inbound lead because the marketing works so well.
Brian Bush: So we're not looking to really increase any expenses at all, other than salespeople, because I'm always interested in salespeople. So really the goal now is, I think we've right-sized. We don't need to be spending a lot more money on people other than sales. So that's kind of how I'm running the company. If we find the right salesperson, we're gonna make them an offer.
Brian Bush: An offer we don't need to add staff it really in any other area.
Scott Christian Buck: Okay. That's ireally helpful color and then in terms of capital allocation. Yeah. How are you thinking about potential [inaudible] or with the stock down at these levels does it make sense to try to buy a little back?
Try to buy a little back.
Brian Bush: You know, I will say this. People are always bringing things served for us to look at.
Brian Bush: As you know that's just the nature of the beast. We're always looking for partnerships that make sense.
Brian Bush: For the most part. That's probably the best word to use "partnership." Maybe work together, if it's something that is symbiotic and see if it really does make sense before you jump in.
That's probably the best word to use partnership maybe work together, if it's something that is symbiotic and see if it really does make sense before you jump in.
Brian Bush: Yeah, and I'd say some people have asked about you know doing a stock buyback or those types of things.
Brian Bush: And I don't know it seems... a lot of times I don't see it really adding a ton of value. It doesn't really change the share price all that much.
Brian Bush: So at this point in time, I think I'd, rather keep the cash on the books or, you know, if I see things that could to spend maybe on salespeople or other things like that but right now I think we've got a ton that we can be doing just to grow and sell and I'm kind of focusing on that.
If I see things that could you just spend maybe on salespeople or other things like that but right now I think we've got time.
That we can be doing just to grow and sell and I'm kind of focusing on that.
Scott Christian Buck: Sounds good. Well, I appreciate the time this afternoon guys. Thanks a lot.
Operator: Our next question comes from the line of Rudy Grayson Kessinger with D. A Davidson. Please proceed with your question.
Our next question comes from the line of Rudy passenger with D. A Davidson. Please proceed with your question.
Rudy Grayson Kessinger: Hey, guys. Thanks for taking my questions.
Rudy Grayson Kessinger: Jeff, welcome and I'm curious, you know, just a couple of weeks left in the quarter as any kind of guidance or color you can give us for Q2 and then just on a go-forward basis, Jeff, do you think we can get to a point where we can get quarterly guidance?
Where we can get quarterly guidance.
Jeff: That's more of a board-level decision, but I'd say, you know, historically and currently, the board opinion is not to give guidance.
The board is opinion is not to give guidance.
Rudy Grayson Kessinger: Okay, fair enough.
Rudy Grayson Kessinger: If you could, on the two new bank pilot and, I guess, maybe throw in the top three just credit card issuer that's in this figure out it too. Is there any way you could size up the potential either transaction volumes or revenues. I mean, is each one of those opportunities? I know the top three banks in multi seven figure opportunities but maybe there's two new banks that are in pilot. I mean, are those mid-six figure opportunities or can those be seven-figure opportunities as well?
There's two new banks that are in pilot I mean at those mid six figure opportunities or can those be seven figure opportunities as well.
Jeff: I think it depends a lot. We'll know more as we get into the proof of concept because a lot of it depends on how often the bank wants to do an authentication.
Jeff: Because some of the banks say "Well, I'm only going to do it if it's, you know, a transaction $2500 or greater." Some are thinking, "No, I need to start at $500." So I'd say at this point in time I think that there's very good opportunities, but I couldn't give you an accurate number that I'd want to hang my hat on today.
Jeff: I would say that probably as we get closer to launch of the proof of concept, we'd have a better insight into that. Because knowing exactly what their decision tree on risk is, I can compare it to some other banks that are the same size and then come up with an estimate.
Knowing exactly what their decision tree on risk is I can't compare it to some other banks are the same size and then come up with an estimate.
Rudy Grayson Kessinger: Okay, that's fair enough. On pricing increases last quarter, you said you had 1100 store department chain that has a 33% price increase that was supposed to go through this quarter. I'm just curious if that's gone through yet. And then secondly, you had said fin serve two and three would be renewing at some point this year. Is there anything further you can share just on timing of when those will renew and your expected price increase you think you'll get on those?
Price increases last quarter. You said you had 1100 store department chain that has a 33% price increase that was supposed to go through this quarter I'm. Just curious if that's gone through yet and then secondly, you instead fin serve okay. Good and then secondly, as had been served two and three.
Be renewing at some point. This year is there any thing further you can share just on timing of windows are over now and your expected price increase you think you'll get on those.
Jeff: Yeah, that's gonna be next quarter. And you know I would say that I'm very happy with, so far, the price increases that are that we've agreed to because they are a combination of price increases and volume guarantee.
And you know I would say that I'm very happy with so far the price increases that are that we've agreed to cause their combination.
Price increases and volume guarantee.
Jeff: But you know, I'm gunna knock wood now and say I don't want to jinx it all yet, but you know we're in the final stages of... we're in the stages of finalizing all of that now.
Goodness knock away now and say I don't want to Jinx. It all yet, but you know we're in the final stages of we're in the stages of finalizing all of that now.
Rudy Grayson Kessinger: Okay, and then just lastly, you know the transition to the new pricing model where people are paying up front.
Rudy Grayson Kessinger: I know you started that last year in most new customers are coming in and out of those fin serve two and three are they going to renew? When they do renew or are they going to switch to that new pricing models as well?
Jeff: They're going to switch to not necessarily paying upfront because they have a lot of seasonality and variability in their revenue streams, because it's very tied to retail.
Jeff: So and then they... aportion of certain costs that just for their accounting. They're going to want to do it pretty much pay as they go. So similar to where they were so I'm kind of indifferent to it because once a retailer's onboard. It's... April is April, May is May, and June is June. Where the volumes are very very consistent and predictable. So we had a very good idea of the revenue that will be coming in.
Once a retailer's onboard.
<unk>.
April was April May is made unions June where the volumes are very very consistent and predictable. So we had a very good idea of the revenue that will be coming in.
Jeff: As I said too there's gonna be guarantees to the number of transactions that we're going to do.
Rudy Grayson Kessinger: And then on the sales side, you said you added two this quarter. I think last quarter you said you added two as well. Just where do we stand with what's the total sales rep head count? And I know you've had some challenges, you know, some turnover in the sales org have you seen any judgement of the recent hires working out better than the hires over the last year/year and a half?
Jeff: Yeah, we're about... The people there are eight or nine salespeople. Nowhere near where I wanna be. I think focusing on hiring people from the industry who understand it is definitely paying off. The two guys that we hired already, the meetings that they brought me to, I'm very pleased with. And they're seasoned. They know how to work the phones. They know how to work relationships. So I'm much happier with the latest hires that I worked with previously.
Eight or nine salespeople nowhere near where I Wanna be Ah I think focusing on hiring people from the industry who understand it.
It is definitely paying off the two guys that we hired.
Already the meetings that they brought me too I'm very pleased with and their season. They know how to work the phones. They know how to work relationships. So I'm much happier with the latest hires and I were with the previous.
Rudy Grayson Kessinger: Okay, I'll jump back in the queue. Thanks, guys.
Operator: Our next question comes from the line of Jeffrey Lee Van Rhee with Craig Hallum Capital Group. Please proceed with your question.
Yeah.
Our next question comes from the line of Jeff Van <unk> with Craig Hallum Capital Group. Please proceed with your question.
Jeff Van Rhee: Hey guys, Aaron on for Jeff. I appreciate you taking my questions. So, first question. To follow up on that question about sales. So any target that you're looking for as far as total sales headcount over the next quarter or two quarters, end of the year?
Jeff: I think that we could... as we begin to focus more on a vertical climate of salespeople so that they are speaking the same language as the clients.
As they begin to focus more on a vertical.
Climate on salespeople so that they are speaking the same language as the clients.
Jeff: One thing that I'd say is when we were smaller they had to say to everybody, but when they are... when we start to get bigger and we know that we can focus on areas, what we're doing is looking to hire people who are experts in that area. And once we size up the opportunity by vertical then we're gonna get a good idea of where we wanna hire people.
Jeff: Because the way that I look at it, if you're not speaking the language you don't have any credibility and you guys get it, you know, in the bond world people talk duration. In equity world, they talk volatility. Nobody from the different worlds knows what that means. I want to make sure that somebody is going in and talking to an auto dealership. They know the language, they're talking to financial services. They know the language. So I would say that you know my goal would be get to 15 good people.
The way that I look at it if you're not speaking the language you you don't have any credibility and.
You guys get it you know and and the bond World people talk duration and equity world. They talk volatility it nobody from the different worlds knows what that means I want to make sure that somebody is going in and talking to you at all.
Though dealership they know the language, they're talking to financial services. They know the language. So I would say that you know my goal would be get to 15 good people.
Jeff: Because we know that we have that much opportunity out there, but you know I wanted to do it logically and I want to make sure that we're hiring good people. I don't want just, you know, a butt in the seat, I want somebody who knows the market that they're going after, has a track record of creating that they can succeed in it, you know. And understand the awesome opportunity that they have coming to Intellicheck as a salesperson.
We're hiring good people I don't want just you know a button to seat I want somebody who knows the market that they're going after has a track record of creating that they can succeed in it you know and understand the awesome opportunity that they have Huntington telecheck as a sales person.
Aaron: Awesome. That's helpful. And then, you know, there's lots of good color on wins. I'm curious if you can put any bounds around bookings in the quarter and how is it compared to expectations, maybe, to past performance anything you can provide there?
Jeff: Q1?
Aaron: Yep.
Jeff: I'm always looking for more than we're providing, so, but I would say that, you know, given you know, it's a new sales team. Given You know where it was when they were building pipeline and things you know I think it was within where we want it to be, you know, I'm always pushing everybody to do more than they are. And then certainly, the salespeople that we have, who are successful always wanted to do more, as well, so that they understand when I'm, saying, we need to do more and you can do more and they get it. So I would say that it's kind of within bounds. I'd rather we were more on the higher end of the bounds.
You know given you know, it's a new sales team given.
You know where it was when they were building pipeline and things you know I think it was within where we want it to be you know I'm always pushing everybody to do more than they are in and then certainly the.
Salespeople that we have we're successful always wanted to do more as well so that they.
They understand when I'm, saying, we need to do more and you can do more and they get it. So I would say that it's kind of within bounds I'd, rather we were more of the higher end of the bounds.
Jeff: We also know that some of it was... we had one of our larger clients go into a freeze so that impacts things, but I'm looking forward to coming out of that freezer and, you know, what we know that's going to bring for us.
And you know what we know that's going to bring for us so.
Jeff: So, within bounds, given given that a number two going into a freeze.
Aaron: Perfect and then last question. Just related is actually a follow-up on that freeze, has anything changed there? I think, previously, you said Q3 and that would be completed. Anything changed there on the timeline?
But that would be completed anything changed there on the timeline.
Jeff: No so far our timeline looks like it's holding. It's just a matter of when in Q3.
Jeff: Because that will depend when all the retailers go into a freeze. You know, where in Q4 they go into it we will have an impact on on implementations this year.
Where are we in Q4 they go into it we will have an impact on on implementations this year.
Aaron: Gotcha, that's helpful. That's it for me.
Jeff: Great. Thank you. Okay.
Okay.
Operator: And our next question comes from the line of Roger Liddell with Clear Harbor asset to proceed with your question.
Roger Liddell: Yeah, good afternoon, Brian and Jeff.
Donald Roger Brooke Liddell: I see a couple of things I wanted to follow up on the comments about the pre-purchasing the buckets. And separately the guarantees. How do those call them changed marketing approaches effect the quarterly pattern that you have guided us to in the past the 21% this quarter, Q1, and 33% Q4, and so forth.
Couple of things I wanted to follow up on the <unk>.
Comments about.
Hmm the pre purchasing the buckets.
And separately the guarantees.
Uh huh.
How do those.
Call them changed marketing approaches.
The quarterly pattern that you have guided us to in the past the 21% this quarter.
Q1, and 33% Q4, and so forth.
Brian Bush: So the one thing I'll say the guarantees the only thing that and Jeff, correct my accounting because you know how much I hate accounting.
Brian Bush: Those guys are, you know, basically billed in [inaudible] and if they miss the guarantee that we'll be chewed up at the end of the year.
At the end of the year.
Brian Bush: And then for the prepayments, Jeff, explain like I don't know, how we're working that prepayment model.
Jeff do you explain like I don't know, how we're working that.
The prepayment model.
Brian Bush: I think we're booking that the straight line, right?
The straight line right.
Jeff: And we have... that is correct, yes.
Brian Bush: So that will take some of the seasonality out.
Brian Bush: But for the most part, are the very large retailers, Roger, Large retailers given the nature of how they do their expensing, they're staying on a model, where we're going to build them in arrears.
Large retailers given the nature of how they do their expensing.
They're staying on on a on a model, where we're going to build them in arrears.
Brian Bush: The bank that has pre-paid.
Brian Bush: We have a lot of the retailers, who pay us direct and then they reimburse the retailer. So they can make the difference. A lot of the other clients in the other markets that we have, they're the ones who are prepaying a bucket.
A bucket.
Donald Roger Brooke Liddell: Okay. Well, I think you... it would help if you were more forthcoming. I don't... I mean more, sharing more with us in terms of the adjustments to the revenue models that we're carrying in our heads.
Well.
Hi.
I think you are it would help if you were.
More forthcoming I don't I mean more.
Alright.
Sharing more with us in terms of the adjustments to the revenue models that we're carrying in our heads are.
Donald Roger Brooke Liddell: For instance, if a shortfall, if [inaudible] is trued up in the Q4, maybe there's a thesis that Q4 is going to be notably higher percentage of annual than of 33.
If a if a shortfall if on a rear ridge is.
It is true it up in the queue for now.
Maybe there's a thesis that Q4 is going to be notably higher percentage of annual spend of 33.
Donald Roger Brooke Liddell: So as things play out, hold our hands in terms of how you think about it.
Old our hands in terms of how you think about it.
Brian Bush: Yeah, and then, Roger, if you remember...
Brian Bush: And we will give color on that but it's it's not calendar year, because it's when the contract signed. So it could end up that we're doing the true up, you know, in Q1 or Q2. It all depends on when the renewal date, you know, on the renewal of the MSA is.
Brian Bush: So it's not necessarily that would come in Q4, but I see what you're saying and when we'll give... we'll try and help everybody with those models because I understand. I don't want to come out with a crazy surprise.
Brian Bush: Yeah, cause then it just screws up quarters going forward, so I take that and I understand it.
Donald Roger Brooke Liddell: Yep, okay.
Unknown Speaker: Yeah. I was struck by the Javelin data, at least I think they're from Javelin. You gave a 2018 Javelin figure yep. Astonishing numbers. Which puts up and bright lights to me one of the mysteries of your penetration or a lack of penetration among the existing financial services companies. Where these are credit card issuers they've got, some call it retailers out there, who are onboard and presumably happy to be sheltered from these fraud patterns.
I was struck by the javelin.
Data at least I think there from javelin you gave a 'twenty eating javelin figure yep.
Astonishing numbers.
Unknown Speaker: Which puts up and bright lights to me one of the mysteries of your penetration or a lack of penetration among the existing financial services companies. Where these are credit card issuers they've got
Financial services companies, where these are credit card issuers they've got.
Some call it retailers out there.
Who are onboard and presumably.
Happy to be sheltered from these fraud.
Patterns.
Unknown Speaker: But why isn't the door... your doorway having other retailers and relevant customers of the FIS, I'm sorry, a financial services company. Why isn't the marketing... Why are people just being driven to your front door by the Javelin numbers and the forecast if it certainly not going down?
Your doorway.
<unk>.
Other retailers and relevant.
Customers of the F I S.
I'm, sorry, a financial services company.
Why isn't the marketing.
Why are people just being driven to your front door by the javelin numbers and the forecast of it certainly not going down.
Unknown Speaker: I'd say that we're beginning to see that.
Unknown Speaker: All marketing takes a while to get in effect.
Unknown Speaker: There's all these studies without, you know, you've got a touch somebody 16 times with their marketing campaign before they even notice it.
Unknown Speaker: You know, those types of things, which is why the spend on marketing was important to them.
Unknown Speaker: And I would say that it is paying off and people are beginning to find out who we are.
Unknown Speaker: And like I said, that the email customer came to us. One of the proof of concept banks came to us.
Banks came to us.
Unknown Speaker: I think it was very interesting that the top three banks that we're talking about. Even though we were working with them, a whole new division of that bank came to us through going to our website and filling out a form because they want to hear about us. So I'd say those things are beginning to pay off. I think there's also, as I said, I'm always looking. I need more people, you know, more quality people knocking on doors. And we're just looking for them and we're adding them and I think we did very well with the two from the industry that we hired this quarter.
The top three banks that we're talking about.
Even though we were working with them a whole new division of that bank came to us through go into our website and filling out a form because they want to hear about us. So I'd say those things are beginning to pay off I think there's also as I said I'm always looking I need more people are you know more.
Quality people knocking on doors, and we're just looking for them and we're adding them and I think we did very well with the two from the industry that we hired this.
Unknown Speaker: So, I think it's a combination of things. But again this company in-short changed marketing itself for a very long time and last year was the first year that we spent money on it. And I think it is happening now and, you know, keeps increasing because the rate at which, you know, the quality leads are coming in. It continues to increase. And when I say quality needs, you know, there's... they're all good but a bar, to me, it's very different than you know a superregional banks coming in and saying I need to talk to you guys about what you do.
Again this company ensure teams marketing itself for very long time and last year was the first year that we we spent money on it and I think it is happening now and you know not relate it keeps increasing because the rate at which you know the quality leads.
Or are coming in continues to increase and when I say quality needs. You know theres is they're all good but a bar to me, it's very different than you know a superregional banks coming in and saying I need to talk to you guys about what you do.
Unknown Speaker: Okay. Finally. I had expected you to give texture and commentary about the platform 2.0. And that I've felt that it represented a departure. a quantum increase in capabilities and opportunities. And you were excited about it but there was not a word in the prepared remarks.
I had expected you to.
Good.
Sure and commentary.
About the platform 2.0.
And that I've felt that it represented a departure.
A quantum increase in capabilities and opportunities.
And you were excited about it but there was not a word in the prepared remarks.
Unknown Speaker: So, the alarm would be that it's old old wine in new bottles.
Alarm would be that it's old old wine in new bottles.
Unknown Speaker: So, one I think I did say, Roger was what we do know... And remember every new clients going on the new platform. What we do know is that we're bringing clients at 50% faster so that means revenues coming in the door easier.
Unknown Speaker: We also have clients now that have either already signed up for international documents or we're in discussions to do that. That is something that couldn't have been done before the new identity platform came out.
Unknown Speaker: So, then I would say that we've got a lot of very interesting things happening with the identity platform with clients who are looking to, "Alright, how do I incorporate now, you know, the sanctions information or the international information" or "Hey, Brian I want this particular products. I need this information. So I'm going to put you in touch with that vendor because I've got the MSA with Intellicheck pass that through to us because it's a heck of a lot easier right now. We get to mark that up. So you know that one of the things that the reason that I said that we wanted to do this was two things.
Then I would say that we've got a lot of very interesting things happening with the identity platform with clients, who are looking to alright, how do I incorporate now you know the sanctions information or the international information or Hey, Brian I want I want this particular products I need this.
This information so I'm going to put you in touch with that vendor because I've got the MSA with Intel a chat.
Pass that through to us because it's a heck of a lot easier right now we get to Mark that up so you know what.
One of the things that the reason that I said that we wanted to do this was.
Unknown Speaker: Banks don't like, you know .... the fewer types, you have coming into you, the fewer chance you have for a cyber event.
Cyber event.
Unknown Speaker: And the second thing is we know from getting MSAS with parents, how long it takes. So we often find that the bank itself, when they find something that they want, they'll go to a vendor who could pass that through. And before that didn't used to be us. Now it is. So now they're coming to us because we're the first step we've got all the information once they give us the.... you know, we get the deal or passport or international document information. We can go now to all the people that we're talking to, you know all the different vendors that we're acting as package for. Grab what that client needs. Package it out, mark it up and get it to the client. So that's what we're seeing, you know, we just launched the platform.
They'll go to a vendor who could pass that through and before that didn't used to be US now. It is so now they're coming to us because we're the first step we've got all the information once they give us. The you know we get the deal or passport or international document information. We can go okay. Now all the people that we're talking to.
You know all the different vendors that we're acting as password score.
Grab what was that.
Client needs packages out mark it up and get it to the client. So that's what we're seeing you know just you know we just launched the platform.
Unknown Speaker: Sales sometimes take a bit and but it's it's beginning to show fruit.
Sometimes take a bit and but it's it's beginning to show fruit.
Unknown Speaker: Yeah, Okay. Thank you.
Unknown Speaker: Cool.
Operator: And we have reached the end of the question and answer session. I'll now turn the call back over to Bryan Lewis for closing remarks.
Bryan Lewis: So I just want to thank everybody for dialing in and listening and for your questions.
Bryan Lewis: Yeah, I think it's... so Roger kind of stole some of my what I was going to stay in the closing.
Bryan Lewis: The surge in identity theft, and fraud, I think really does highlight why people need our products.
Bryan Lewis: You know, it's happening across every vertical, every market. And we can play in every vertical and every market and I think the fact that we continue to extend our market penetration both in our original core market of credit cards and banking, but we're also proving our value in all of these other new markets as well. So, to me, the new identity platform, the ability to do more for our clients, is going to be a great thing and I continue to be excited about what lies ahead for Intellicheck.
Both in our original core market of credit cards and banking, but we're also improving our value in all of these other new markets as well so to me the new identity platform the ability to do more for our clients, there's going to be a great thing and I continue to be excited about what lies ahead.
Bryan Lewis: So, thank you all very much.
And this concludes today's conference and you may disconnect your lines at this time. You for your participation.
You for your participation.
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