Q3 2022 Intellicheck Inc Earnings Call
Greetings and welcome to Intel a check third quarter 2022 earnings call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Gar Jackson Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, and thank you for joining us today for the Intel <unk> third quarter 2022 earnings call before we get started I will take a few minutes to read the forward looking statement certain statements. In this conference call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 as amended.
When used in this conference call words, such as will believe expect anticipate encourage and similar expressions as they relate to the company or its management as well as assumptions made by and information currently available to the company's management identify forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements are based on management's current expectations and beliefs about future events as with any projection or forecast. They are inherently susceptible to uncertainty and changes in circumstances and the company undertakes no obligation to and expressly disclaims any obligation to update or alter its forward looking statements.
Whether resulting from such changes new information subsequent events or otherwise.
Additional information concerning forward looking statements is contained under the heading safe Harbor statement and risk factors.
<unk> from time to time in the company's filings with the Securities and Exchange Commission.
Statements made on today's call are as of today November 14th 2022 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.
Contact for the use of this term.
I'll begin today's call with Brian Lewis <unk>, Chief Executive Officer, and then Jeff Ishmael and Telecheck, Chief Financial Officer, who will discuss the Q3 2022 financial results. Following their prepared remarks, we will take questions from our analysts and institutional investors today's call will be limited to one hour and I will now turn the call over to Brian .
Thank you <unk> and welcome everyone to the third quarter 2022, and Telecheck earnings call. A couple of things to note from the numbers that we believe show that we're on the right track.
First we continue to grow with SaaS revenues up 22% over the same period, a year ago as you'll hear we continue to expand within our existing clients and we are growing customers across many varied use cases and note that our gross margins remained very healthy at greater than 90%.
Second I think a concern many had that we would need to raise money to fund operation that is not the case adjusted EBITDA for Q3 was a positive $75000 compared to a negative $272000 in the same period last year and a negative 583000.
Last quarter.
There are two things that I've said many times in a standby what I told you before that is we see no need to raise money for working capital and we do not need legions of people to run the company or handle explosive growth. The only primary areas, where I see continued increases in spending our sales and marketing and those increases should.
Create increased growth, we'll be watching those expenses closely and aligning hiring and spending with growth.
Before I get into some of the wins of the quarter I want to remind everyone of the magnitude of the problem. We are solving I think it gives insight as to why our customers continue to expand usage and why we are seeing new prospects coming to us with growing frequency.
In 2021 traditional identity theft rose, 79% with losses, almost doubling over 'twenty 'twenty to 'twenty $4 billion. The main fraud amount lost each time increased $200 to 1551, and that's up $500 since I started in 2018.
And if you were one of the $15 3 million Americans, who was hit by this crime. It cost you on average nine hours of your life and $224 to clear your name.
Account takeover fraud was the fastest growing proud because the bad guys found it was a much larger hall each time at a mean fraud them out of $2169 total takeover accounts, Rajiv, 90% to $11.4 billion and Unfortunately, if you were the victim of back.
Crime it costs 14 hours of your life and $515.
So our clients and prospects. It is important to stop these crimes in the most simple frictionless way possible if they don't not only do they suffer the monetary losses, they potentially lose a customer and their lifetime value studies show that up to a third people will move their banking relationship if their identity install.
Alan.
Our clients and prospects need something that is accurate and fast and that is Intel a check I believe the fact that 26 state level law enforcement agencies use our services to validate and I D is proof of our accuracy.
To speed, we determined that the validity of our license in 44 milliseconds to put that in context, that's less than half the time it takes to blink.
The other distinction I would like to remind everyone of is the Intel <unk> technology solutions required no new hardware.
The companies that use a photo of the document to compare to a template we work with the existing scanning devices at retail locations in the Czech readers at the teller workstations at the same time R. A T is make it easy to integrate or to any traditional brick and mortar system as well as any mobile app or website.
We believe that is quite the competitive advantage. When every study shows that the vast majority of transactions still happen in person.
Business week article recently said research from UBS shows that online shopping is back to pre pandemic levels, So down and data from the U S Census Bureau show that online growth has trailed sales gains of the overall retail industry for the last five quarters.
So moving on to highlights of the quarter I am happy to say that financial services company number three completed their renewal and signed a three year term that includes a price increase and a commitment to a minimum of a 20% increase in transactions in the first year of the contract.
Currently this client does not do anything in the digital world, but in addition to expanded usage on premise they intend to open digital channels in 2023.
This leaves me to believe that the larger increase in volume will be towards the back half of the year.
Number three continues to be one of our best reference clients and I believe this three year renewal with a contractually committed increase in volume tells you the certainty they have in our products.
Financial services company and number four I've seen a 67% increase in transaction volumes is it coming from multiple areas. They continue to bring live retailers. They are winning from competitors, which is increasing volume. They also have our technology solution now completely integrated call Center software.
And call centers are a large vector for account takeover fraud. So we see continued usage there.
We have also completed the renewal with a large Midwestern bank client with over 1100 branches in 10 states again with the price increase.
I was recently on a quarterly business review with this account and they spoke of the large amount of bot attacks Theyre seeing aimed at account takeover and they said they are a nightmare for any company without accurate IV validation.
The bank also said they consider themselves a data hungry organization I shared that with you in light of the fact that they have just completed the migration to the new platform. So they are very interested in and are evaluating all of the new signals they have access to remember.
I remember the first step in proper AML processes to make sure that it is in fact, Brian Lewis and then make sure I can and want to do business with Brian Lewis that is what the platform allows our clients to now do.
Last quarter, we spoke about the omni channel multi biometric platform for banks marketplaces, and health care systems that is reselling, our IV validation tools. They started with US in January of this year and purchased a bucket of 500000 transactions, which they had to replenish when we last spoke.
They have since gone through that bucket in our purchasing another.
On the automotive front in addition to receiving multiple inbound leads and closing those we've signed an agreement with the reseller working with the CRM and sales engagement software provider to the automotive space.
Their software is used it over a thousand dealerships and they feel confident that most if not all of those dealerships will be interested in the software.
An important upsell opportunity to the existing and new auto dealerships clients are those same AML signals that let me know if I can and want to do business with a person dealerships have told US this data was important to them.
Most of them, though we're using our portal product on a handheld device for our portal plus web product, which allows them to validate a person whether they're standing in front of them or thousands of miles away. We have now incorporated these signals into these products. So these dealerships now have access so another great opportunity.
For the sales team.
On the age restricted front a couple of new unique sales. We are now live with two companies that distribute vending machines for the sale of cannabis products.
When someone wants to make a purchase they scan a QR code, which kicks off the IV validation and facial biometrics process to make sure that not only is the licensed real but I am the one holding it before the product can be dispensed they've just begun distribution of the machine. So it will be interesting to see volumes going forward.
Also like to say, we are now live with a nationwide consumer goods food and age restricted delivery company that operates in 650 cities are validation tools are integrated into their delivery driver mobile app for checking on age restricted deliveries.
They've rolled out for testing purposes to one north East city, but anticipate a nationwide rollout in 2023.
At the same time, we were coming out with new products, particularly around data.
At the ended the quarter, we introduced business intelligence. This is a tool our clients can use to dive into the patterns and usage trends of their transaction data.
This is sold as an annual subscription with annual seat license fees by user we've already made the first sale of it to the media companies using us for email password resets and we were encouraged by what we're seeing in client interest.
Currently it is just each clients own data, but we believe and our clients seem to agree that pooling Anonymised community data for comparison purposes is worth even more and we plan to release that in 2023.
The two regional bank prospects, we spoke about last call are going well, we are working through the master services agreements with both.
And the top three bank continues to slowly move through their process.
I'm also pleased to report that the reboot of the sales team is going exceptionally well, we now have six senior salespeople all of whom come from identity or cyber security sales focusing on financial services and a M. L. K why she use cases.
In addition, we have three senior account managers, focusing on expanding our footprint at existing clients.
While these existing clients all continue to grow we feel those accounts should grow even faster and we believe dedicated resources will make that happen.
Another area. We are strengthening involves inbound leads we have two hungry motivated people handling those inbound leads which market and continues to do a great job of bringing in.
Our expanded focus on efficiencies has included a great deal of effort spent on automating all of our processes for scale, many of which Jeff will speak about in just a few minutes.
On another front, we've taken another step toward including machine learning and our systems did you that broad pattern attempts again, here's an opportunity to provide data that we think will be valuable to our clients and we will be including it in business intelligence square feet.
Sales operations is also providing insight and accountability to our processes, which is a value valuable step forward.
Finally, you have some new certifications that are important to our clients. We are now sox to type two.
And we have received word that we had verbal confirmation that we will be receiving ISO 27 O. One and 27 and 701 certification. The latitude certifications are very important and they are the first steps to GDP or compliance, which is key for international client base.
In closing you can see that a lot is happening here at Intel it checks as we make important strides forward with continued existing growth the introduction of new products and the addition of new people to further our progress. This is just the beginning we have been setting the stage for what we believe will be even greater growth and innovate.
<unk> in the future I will now turn it over to Jack.
Thank you Bryan turning now to our third quarter results revenue for the third quarter of 2022 declined 819000, or 17% to 4.012 million compared to 4.831 million in the same period of 2021 last year's third quarter revenue included $1 5 million of <unk>.
Non recurring hardware sales or SaaS revenue for the third quarter of 2022 grew 725000 or 22% to 3.978 million from 3.245 million for the same period in 2021.
Gross profit as a percentage of revenues was 91, 1% for the third quarter of 2022 compared to 68 point, 70% for the same period of 2021. The increase in gross profit percentage was primarily driven by significantly lower equipment sales for the third quarter this year versus last year.
Operating expenses, which consist of selling general and administrative marketing and research and development expenses increased 32000, or 1% to 4.378 million for the third quarter of 2022 compared to 4.346 million for the same period of 2021.
This increase was primarily driven by higher recruiting and professional fees as well as higher marketing and advertising expenses.
Within operating expenses for the third quarter of 2022 2021 for 729000, and 712000, respectively of noncash equity compensation expense.
The company reported a net loss of 724000 for the third quarter of 2022, compared with a net loss of $1 26000 for the same period of 2021.
Net loss per diluted share for the third quarter of 2022 was four cents compared to the net loss per diluted share of six times for the same period of 2021.
The weighted average diluted common shares were $18 9 million for the third quarter of 2022 compared to $18 6 million for the same period of 2021.
Adjusted EBITDA for the third quarter of 2022 was a gain of 75000 compared to a loss of 272000 for the same period of 2021.
Three of the company's liquidity and capital resources as of September 32022, the company had cash of $11 8 million.
Working capital defined as current assets minus current liabilities of $9 2 million total assets of $24 1 million and stockholders equity of $18 3 million.
The company has a 2 million revolving credit facility with Citibank that are secured by collateral accounts and there are no amounts outstanding under this facility.
As of September 32022, we had a net operating loss carryforwards of approximately $23 4 million.
It's been an exciting first five plus months of Intel a check one of my objectives. After taking the CFO role was to streamline the financial processes and procedures and improve our reporting so that we can operate the business with real time data to guide our decisions.
Things move fast in our industry and we need to adapt quickly to these changes we believe that we're close to regaining the momentum we had prior to COVID-19 and need to be properly positioned with the right platforms in place to scale the business quickly.
Let me share with you a few internal initiatives that were accomplished during the third quarter.
One of our larger initiatives was to implement a robust equity management platform and I'm excited to say that this is done.
Platform utilizes cloud based technology developed by a leading global Fintech company that is deployed across more than 100 countries.
This new platform offers a full suite of services ranging from Cal cable management full equity program management as well as brokerage services. This new equity platform replaces previous internal and manual processes.
In further support of increasing our internal efficiencies. We have also brought automation who are previously manual financial reporting processes.
Platform will improve and support our statutory reporting requirements and allow us to operate with much more efficiency.
Our chosen partner has 19 offices globally and more than 5300 customers.
We have also made some changes on the order front during the third quarter, we welcomed Forbis L. P. As our new audit and tax partner ranked among the top 10 public accounting firms Forbis has 5500 dedicated professionals services serving clients across all 50 states.
Over the last 12 weeks, we have deployed best of breed platforms and vendor selections that will allow the sales of executive teams to focus on driving future revenue growth, which we believe has been hampered by a collection of manual processes my commitment to build on it when I joined the company was to address these legacy processes and to provide the highest quality data and metric reporting that we built.
Label positioning the team to drive growth and operate more efficiency.
We believe that we are much better positioned than we were only months ago to scale. This business to new levels and drive shareholder value I will now turn the call over to the operator to take your questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue.
And for participants using speaker equipment may be necessary to pick up your handset before pressing the star teams.
Our first question is from Scott Buck with H C. Wainwright. Please proceed.
Hi, Good afternoon, guys. Thanks for taking my questions.
The first one Brian I was hoping that you might be able to talk a little bit about the retail environment. You know a lot of talk about.
Consumers pulling back and in light of some you know heightened economic uncertainty I'm wondering if you guys are seeing any of that as we move into the stronger fourth quarter.
So far and when I go back and compare numbers you know other than for some retailers that are having just certain overall issues I'm not seeing a big pullback of any sort and we generally can see that you know basically in real time as we did with Covid when things are opening and closing we'd get the numbers you know in real time, so we could see.
You bet.
Knock on wood, so far not yet.
Okay, and can you remind us how much of that that legacy business makes up of total revenue.
The you're saying the card applications and card not present transactions.
That's the vast majority of the retail I'd say that.
It used to be upper Ninety's, it's probably a little bit less now because so many more of the banks are using us in their at the teller workstation. So that's has been a big growth driver, but it's the majority of the revenue still.
Okay. That's helpful. And then my second question are you.
Positive adjusted EBITDA this quarter, how should we think about you managing the business.
On a go forward basis, how are we managing to breakeven.
Or how are you I guess, how are you handling the push pull between investing in an additional growth versus you know maintaining a positive EBITDA.
Yeah. The good thing about sort of investing in that additional growth is not a lot of money to invest it's really advertising and people so managing to breakeven and slightly positive as we flesh out the sales team that I think that we need to be able to make sure that.
We're hitting all the verticals that we should be in I think one of the really.
Good things that we've done is our salespeople are now focused on a vertical which means they understand the business and speaks the language in there are you know.
Different verticals like automotive again, I think youre doing so well there. We've had you know people focused purely on automotive from that industry. We do better. So that's how we're looking at additional spend mm smart verticals right people, who speak the language and the right advertising to go after it.
Alright Super that's it for me thanks, guys.
Thank you.
Our next question is from Rudy Kessinger with D. A Davidson. Please proceed.
Great. Thanks for taking my questions on the price increases both with them I think fin serve number three in one of those Midwest banks. So it doesn't come in in line with the past price increases that you said were low double digit and then secondly on sensor three I want to be clear you said, they're committing to a 20% increase in transactions and the <unk>.
First year, then your contract when does that contract renew and into the 20% increase in transactions.
So as we think about the revenue increase it would be the 20% increase in transactions plus the price increase I want to make sure I'm understanding that right as well yeah. So a couple of things on that this is a contractual commitment to be doing a lot more so we traded a little bit of increase.
For the contractual commitments because they are going to do it or cut it to check at the end of the year you know if they miss but what they have committed to doing the and really either way to think about these price increases as we renew and renew and renew we're bringing people up to what I would consider it.
Hum.
More than market pricing some of the deals that were struck or.
Negotiated negotiation begun.
Before I got here were much lower rates. So they certainly have had significant price increases I think now what we can look at as you know.
More sort of a cola adjustment CPI type adjustments for most of our clients going forward, because we are pretty much everybody kind of at market pricing now.
Yeah.
Got it and then as we think about Q4 as you sit here kind of halfway through the quarter is there any kind of you know pounds you could point us to for Q4 as it relates to kind of a more typical seasonality in Q4 as we get back to a more normal in person Black Friday relative to maybe the last year or two or pre COVID-19.
What kind of seasonality should we expect in Q4 versus Q3.
Yeah, if we look at.
And our.
Our main clients are they seem to be getting back to where they were pre COVID-19.
And typically.
In a normal year across all of the retailers you know we get them.
About 33% of all transactions would come in in Q4.
And 23% in Q2, and Q3 and 21 in Q1. So it appears it's feeling like the world has gotten.
Kind of back to where it was so that I think is about where we should be.
Yeah.
Yeah.
Got it and then just on the new sales reps I know you had hired a handful that started just recently maybe it's been too early maybe not but just how how are they ramping relative to expectations and I guess more importantly, how are they ramping relative to the past reps, who you had hired over the last year or two and it didn't work out.
I think that they're ramping a lot faster, Chris actually had an off site with his team and they did a lot of training you know one of the things I think that we did differently was.
How we went about hiring the people and making sure we've got people with industry knowledge, which makes it so that you know one.
The ramp is a lot quicker youre not explaining the industry to them to they all came here knowing that they would make less money than they did last year, because they all had pipelines and everything but the opportunity that they saw made.
Made them want to come so that's I think a very exciting thing and like you know between the training program that Chris has put together and us working with them on.
Their industry knowledge, I'd say that they're ramping faster.
Got it and then just lastly, Jeff how should we think about kind of the normalized opex.
Opex run rate from here just stepped down about 400000 of gap from Q2 to Q3 on non gap a bit more of the ex stock comp, what's what's kind of the right Opex run rate, we should use for Q4 going forward.
Yeah, I think I'm going to you Brian .
Brian and I have been talking about the Opex a lot we've talked about are being much more efficient in the deployment of that spend and I think we're going to keep a pretty high.
Critical island on that spend going toward we anticipate that we're going to have additional spend as we ramp out the sales and marketing teams, but again, we're going to look at percentages that are going to be in the same approximate range.
Got it thanks, that's it for me.
Okay.
Our next question is from Mike Grondahl with Northland Securities. Please proceed.
Hey, guys. This is Luke on for Mike.
I just wanted to start with the new products and use cases, and our expanded digital applications that you guys had mentioned in the press release and I touched on earlier with the business intelligence, but I was just wondering if you could expand a little more on this or give a little more color as to the types of products you use cases and probably expand.
And digital applications.
Any color there would be helpful.
Yeah, well, if you think about sort of.
Drivers.
Mobile apps now for age restricted delivery, which you know that's all using our API. That's the case all of our banking clients are certainly.
We are in their mobile apps.
Now number three certainly he said that.
23 is going to be a digital year for them. So you know everything from their retailers' websites for credit to their online banking tools. So those types of things so.
Again when people are.
I didn't realize we continue to grow in the digital world, but we continue to grow faster in the on premise world because that is growing faster than the digital for most things. There you know people are applying for something like rehab, but yeah.
Products work, we've got plenty of clients using them.
The digital use continues to increase every quarter.
Got it that's helpful and then.
I just wanted to touch on the two southern banks that I think you guys mentioned or originally was supposed to be.
And three Q I think last call you mentioned one of them actually finished the pilot, but was waiting for some software updates in a teller workstation and then yeah. There was going through an info SEC review.
Any updates to call out there.
Yeah. So both of them are now working through the contracts one of them. I was just you know just a few hours ago talking to Chris about it.
They wanted to be live in Q1.
Early Q1, so they're putting a big push on there both are going exceptionally well both are very happy with everything that would be looked at and tried and now it's just you know.
In the eyes and crossing the T's on everything that goes into a master Securities agreement with the bank.
Got it sounds good thanks, guys. That's it for me.
Thank you.
Oh.
And our next question is from Daniel Schmidt with Craig Hallum Capital Group. Please proceed.
Hey, guys. Thanks for taking my questions. This is Daniel on for Jeff I'm, just first off just looking at the billings is kind of looking at how we calculate that it looks like it's down year over year I'm, just wondering about your satisfaction with the bookings and whether or not that's meeting your expectations as to in terms of ramping and how the sales reps are doing.
Well the the SaaS revenue was up and I think that's one of the things that I think.
I guess, maybe screening tools and what people are looking at we had two extraordinary large hardware purchases spread out across two quarters last year.
That we did as an accommodation for number three because they thought it would help them roll out to their teller workstations faster if they just bought it through us.
Since they already had an MSA if they had to go negotiate it they figured it would take them forever.
And having negotiated with this fact I know it takes a very very long time.
So I think that kind of skews the picture a bit now and then we got to look at two things you know there was the salespeople that we had who no longer have 'cause.
It just wasn't ramping fast enough.
Thankfully through you know some of the folks that were good we had.
Pretty robust pipeline.
And we also have clients, who continue to find new use cases.
And we're doing that while the team you know the sales team ramps and you know the good thing too is it's not like we need the sales team the new team to be experts on everything they just need to be able to get meetings. Because then you know myself and Chris and anybody else in the company can get on the sales calls with them.
So that's one of the reasons that we wanted to focus on people that had connections we're selling into the space.
All we want is the meetings and then they can learn by listening to us due to calls in the meeting.
Okay. Thanks for that color and then you mentioned the pipeline just any color on the pipeline and how that's changed over the last three months.
You know I think.
The main way it's changed is.
Different new and different verticals.
And often I think that's because of some of the existing folks that we brought in who had sold sort of large deals from some of our competitors.
They're here now calling up where they saw those deals and saying I know you had issues I'm here because it works a lot better so that's bringing us into I think some new markets, but our focus is still on.
Stopping our identity theft in financial services.
That's an area obtained right. We can immediately stop losses. So many other areas are you know it's nice you know the law still says for age restricted products. All you have to do is look at a license you don't have to try and validate it. So you know I'm trying to banquet.
This company has in place the delivery service, we're working with who wanted to make sure they're doing the right thing and go on beyond that but it's easier to sell and stuff into pain and stop the pain and we've got the reference points that every one of our competitors would want so we've got a great advantage there and we'll continue to focus on that.
Okay. That's it for me thanks for taking the question.
Thank you.
We have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
So I'd just like to thank everybody for attending and you know as always all of US here at Intel. It checks are excited about what we're doing what we're stopping the crime, we stopped opinion stop with the banks and the victims from going through.
And.
We continue to do it we've got great team in place and I look forward to speaking to you all at the next call.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
[music].
Okay.
Yeah.
Mhm.