Q2 2024 Intellicheck Inc Earnings Call

Speaker Change: [inaudible]

Speaker Change: See you in England.

Speaker Change: ?? ?? ?? ??

Speaker Change: Greetings, and welcome to the Intellicheck second quarter 2024 earnings call.

Operator: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone wants to require your assistance during the conference, please press star 0 and you'll tell them to keep that. As a reminder, this conference is being recorded. I would now like to turn the call back over to your hosts, Gar Jackson and Investor Relations. Please go ahead.

Speaker Change: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the conference over to your hosts, Gar Jackson and the Investor Relations. Please go ahead.

Gar Jackson: Thank you, operator. Good afternoon, and thank you for joining us today for the Intellicheck second quarter, 2024 earnings call. Before we get started, I will take a few minutes to read the forward button statement. Certain statements in this conference call constitute forward button statements within the meaning of the private securities litigation reform act of 1995 as a whole. When used in this conference call, words such as "believe, expect, anticipate, encourage, and similar expressions as they relate to the county arts management, as well as assumptions made by information currently available to the county's management, identify forward-booking statements within the meaning of the private securities litigation reform act of 1990 of 1995.

Gar Jackson: Thank you, operator. Good afternoon, and thank you for joining us today for the Intellicheck second quarter 2024 earnings call.

Speaker Change: Before we get started, I will take a few minutes to read the forbidden statement.

Speaker Change: Certain statements in this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended.

Speaker Change: When used in this conference call, words such as will, believe, expect, anticipate, encourage,

Speaker Change: 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 1990.

Speaker Change: of 1995. These forward-looking statements are based on management's current expectations and beliefs about future events.

Speaker Change: 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,

Speaker Change: Subsequent events or otherwise. Additional information concerning forward-looking statements is contained under the Headings of Safe Harbor Statement and risk factors listed from time to time in the company's filings with the Securities and Exchange Commission.

Gar Jackson: St havens for eight on today's call or as up to today, August 8, 2024. Management will use the financial term adjustment EBITDA on today's call. Please refer to the company's press release issued this afternoon for further definition, reconciliation, and concepts for the use of this term. We'll begin today's call with Bryan Lewis, Intellicheck's Chief Executive Officer, and then Jeff Ishmael, Intellicheck's Chief Operating Officer and Chief Financial Officer, who will discuss the second quarter financial results. Following their prepared remarks, we'll 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 Bryan.

Speaker Change: Statements made on today's call are as of today, August 8, 2024. Management will use the financial term adjusted EBITDA on today's call. Please refer to the company's press release issued this afternoon for further definition, reconciliation, and concepts for the use of this term.

Speaker Change: We will begin today's call with Bryan Lewis, Intellicheck's Chief Executive Officer, and then Jeff Ishmael, Intellicheck's Chief Operating Officer and Chief Financial Officer, who will discuss the second quarter financial results.

Speaker Change: 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 Bryan.

Bryan Lewis: Thanks, Gar, and thank you all for joining us for our Q2 earnings call. As we begin today, it is important to look at a milestone that highlights what I continue to emphasize. Fraud and identity theft isn't going away, and a look at the latest data underscores the significance and pervasiveness of the problem. According to the identity theft resource center, the number of data breach victims exceeded 1 billion people for the first half of 2024, compared to 183 million people who were data breach victims in the first half of 2023. That represents more than a 400% increase in both our staggering numbers. It's worth pausing a moment to digest the impact.

Bryan Lewis: Thanks, Gar, and thank you all for joining us for our Q2 earnings call. As we begin today, it is important to look at a milestone that highlights what I continue to emphasize. Fraud and identity theft isn't going away, and a look at the latest data underscores the significance and pervasiveness of the problem.

Bryan Lewis: Each of these data breach victims are now prime candidates for identity theft and fraud. To underscore that data breach is equal to identity theft, remember that in 2023, there was a 13% increase in traditional identity theft losses where a stolen identity was used to commit a crime. Losses rose to $23 billion, impacting 15 million victims in the U.S. But with that as a backdrop, our mission remains clear. We continue to believe that our technology is the most effective at stopping fraud and identity theft. And that Intellicheck is the best first step in identifying that a person is who they say they are. It's that simple.

Bryan Lewis: According to the Identity Theft Resource Center, the number of data breach victims has exceeded 1 billion people for the first half of 2024.

Bryan Lewis: compared to 183 million people who were data breach victims in the first half of 2023. That represents more than a 400% increase, and both are staggering numbers.

Bryan Lewis: It's worth pausing a moment to digest the impact. Each of these data breach victims are now prime candidates for identity theft and fraud.

Bryan Lewis: To underscore that data breaches equal identity theft, remember that in 2023, there was a 13% increase in traditional identity theft losses where a stolen identity was used to commit a crime.

Bryan Lewis: Losses rose to $23 billion, impacting 15 million victims in the U.S.

Speaker Change: With that as a backdrop, our mission remains clear. We continue to believe that our technology is the most effective at stopping fraud and identity theft, and that Intellicheck is the best first step in identifying that a person is who they say they are. It's that simple.

Bryan Lewis: The IntelliCheck Identity Platform allows our customers confirmed that the person there entering into a transaction with

Bryan Lewis: is who they say they are and that they can and want to do business with them.

Bryan Lewis: and our customers are able to do it so quickly, easily, and seamlessly without the need for new hardware.

Bryan Lewis: Because of our proven technology's high degree of accuracy, this simple first step allows a transaction to go forward with confidence, facilitating the onboarding of new good customers while assuring bad actors will not be successful.

Bryan Lewis: In looking at Q2, you will see the value of the strategic moves we have made. You are probably well aware that we are currently heavily dependent on our retailers to drive revenue. We have been successfully expanding our presence in additional market verticals in line with our strategic plan to remain agile as we look to continue to fuel growth. However, understand that we are still building on a relatively small base but one that is growing.

Bryan Lewis: In looking at Q2, you will see the value of the strategic moves we have made. You are probably well aware that we are currently heavily dependent on our retailers to drive revenue.

Speaker Change: We have been successfully expanding our presence in additional market verticals in line with our strategic plan to remain agile as we look to continue to fuel growth. Understand that we are still building on a relatively small base, but one that is growing.

Bryan Lewis: This diversification will take time, but we believe we are well underway. Turning now to a brief overview of our Q2 results that Jeff will go over in more detail shortly. 22 SaaS revenues were 4.6 million, down 36,000 versus a year ago.

Bryan Lewis: This diversification will take time, but we believe we are well underway.

Speaker Change: Turning now to a brief overview of our Q2 results that Jeff will go over in more detail shortly.

Bryan Lewis: We maintained robust expense disciplines, showcased by our operating expenses that were down 770,000, or 17% versus the same period last year. The company's net income improved by 726,000 to a net loss of 127,000 for the second quarter of 2024 compared to a net loss of 853,000 for the same period in 2023. A snapshot of market realities gives you an important frame of reference. As it stands today, retail continues to be largely bifurcated, with the luxury segment benefiting from high-income purchasers, so it's doing relatively well.

Jeff: Q2 SAS revenues were $4.6 million, down $36,000 versus a year ago period.

Jeff: We maintain robust expense disciplines showcased by our operating expenses that were down 770,000 or 17% versus the same period last year.

Speaker Change: The company's net income improved by 726,000 to a net loss of 127,000 for the second quarter of 2024 compared to a net loss of 853,000 for the same period in 2023.

Speaker Change: A snapshot of market realities gives you an important frame of reference, as it stands today retail continues to be largely bifurcated with the luxury segment benefiting from high-income purchasers, so it's doing relatively well.

Bryan Lewis: However, our clients include many apparel retailers who continue to see headwinds from consumer pullback, and this also impacts department and home improvement stores, channels that continue to struggle for the most part while we continue to stop fraud effectively for our customers and these verticals. Our retail concentration had an impact on our second order result. Additionally, we are seeing more news of activity around bankruptcies and store closures, including one of our customers that entered Chapter 11 towards the end of July.

Speaker Change: However, our clients include many apparel retailers who continue to see headwinds from consumer pullback, and this also impacts department and home improvement stores' channels that continue to struggle for the most part.

Speaker Change: While we continue to stop fraud effectively for our customers in these verticals, our retail concentration had an impact on our second quarter results.

Speaker Change: Additionally, we are seeing more news of activity around bankruptcies and store closures, including one of our customers that entered Chapter 11 towards the end of July , and another that is a home discount retailer closing it down a significant number of stores.

Speaker Change: This reinforces why we believe that it is becoming ever more important to continue to expand our reach outside of traditional retailers into the new verticals we have been focusing on.

Speaker Change: When comparing Q1 to Q2 of this year, we saw an 11% sequential increase in our new customer average price per scan. This increase speaks to our diversification strategy and newer verticals having a higher price per scan.

Speaker Change: However, scan volumes and revenues in our legacy verticals continue to be pressured.

Bryan Lewis: However, scan volumes and revenues in our legacy verticals continue to be fresh. You're over Last year, we saw double-digit negative comms amongst our department store, parallel, and cosmetic retailers with more significant headwinds from our furnishing and home improvement vertical.

Speaker Change: Year over year, we saw double-digit negative comps amongst our department store, apparel, and cosmetic retailers, with more significant headwinds from our furnishing and home improvement verticals.

Bryan Lewis: This scan volume is partially offset by our electronics vertical and the new categories we have begun focusing on, including auto, title insurance, and the email social media vertical. We continue to believe that expanding our presence in market verticals like email and social media authentication, as well as title insurance and automotive, which are complemented by our new channel partner program, will result in significant drivers of increased volume in the future, as we continue to build momentum in these new categories that continue to suffer from significant fraud.

Speaker Change: This scan volume was partially upset by our electronics vertical and the new categories we have begun focusing on including auto, title insurance, and the email social media verticals.

Speaker Change: We continue to believe that expanding our presence in market verticals like email and social media authentication.

Speaker Change: as well as title insurance and automotive that are complemented by our new channel partner program will result in significant drivers of increased volume in the future as we continue to build momentum in these new categories that continue to suffer from significant fraud.

Bryan Lewis: Despite these headwinds, as you can see, we have it will continue to move forward with a laser focus on signing new customers and expanding our use cases amongst existing customers that continue to seek out additional ways to keep the bad guys at bay and protect their businesses from the growing fraud landscape. At the same time, I've moved forward with staffing changes that speak to what I've long told you. I'm continually evaluating our needs and our performance to make changes where we need to strengthen the organization.

Speaker Change: Despite these headwinds, as you can see, we have it will continue to move forward with a laser focus on signing new customers in expanding our use cases amongst existing customers that continue to seek out additional ways to keep the bad guys at bay and protect their businesses from the growing fraud landscape.

Speaker Change: At the same time, I've moved forward with staffing changes that speak to what I've long told you. I'm continually evaluating our needs and our performance to make changes where we need to strengthen the organization.

Bryan Lewis: On Friday, we will be welcoming Sandra Bauer, who will serve as our Vice President of Customer Experience and Account Management. Sandra brings significant relevant experience to this new position at Intellicheck. She is an innovative client experience executive who has a track record of driving success through achieving revenue growth and client retention for companies such as Juniper, Otho, Aptos, Salesforce, and more. Her SaaS company experience is reflected throughout her more than two decades of high-tech experience, which also includes developing customer experience strategies and high-performing account management teams, in addition to sales operation expertise that aligns the customer experience across the organizational spectrum.

Speaker Change: On Friday, we will be welcoming Sandra Bauer, who will serve as our Vice President of Customer Experience and Account Management.

Speaker Change: Sandra brings significant relevant experience to this new position at Intellicheck.

Speaker Change: She's an innovative, client-experienced executive who has a track-regative driving success who are occurring revenue growth and client retention for companies such as Juniper, Otho, App Test Sales Force, and more.

Sandra Bauer: Her SaaS company experience is reflected throughout her more than two decades of high-tech experience, which also include developing customer experience strategies and high-performing account management teams, in addition to sales operation expertise that aligns the customer experience across the organizational spectrum.

Bryan Lewis: Sandra will have lead responsibility for the implementation process, customer revenues, and account management services. Sandra comes to us from Ed Trust, and she's head of account management there. She overhauled the customer management programs, resulting in increases in retention, revenue, and satisfaction scores. We are excited to have her on board and fill this new important role. Just as importantly, this change will allow Chris Meyer to focus his attention solely on his team, bringing on board named accounts and prominent logos that we believe will really drive growth going forward. Chris has demonstrated his strength in this regard.

Speaker Change: Sandra will have lead responsibility for the implementation process, customer revenues, and account management services.

Speaker Change: Sandra comes to us from Entrust and is head of account management there. She overhauled the customer management programs resulting in increases in retention, revenue and satisfaction scores. We are excited to have her on board and fill this new important role.

Speaker Change: Just as importantly, this change will allow Chris Meyer to focus his attention solely on his team, bringing on board named accounts and prominent logos that we believe will really drive growth going forward.

Chris Meyer: Chris has demonstrated his strength in this regard over his past nine years with IntelliChat, Chris has been responsible for bringing on board many of our largest customers.

Speaker Change: that generate a significant portion of our revenues. We are very excited to allow Chris to focus exclusively on generating sales, while Sandra focuses on the customer experience and account management, along with working in conjunction with the IT team to drive rapid and successful implementations.

Speaker Change: Turning now to our Q2 wins, Domic Title Insurance is one of our newest clients who are very excited to see their press release on August 6.

Chris Meyer: highlighting the partnership in which DOMA independent title agents

Chris Meyer: and its approved attorneys.

Chris Meyer: are now able to use IntelliCheck to detect seller impersonation fraud.

Bryan Lewis: Doma Title Insurance is the nation's eighth largest title insurer, and they understand the importance of Intellicheck's industry-leading identity validation technology. In 2023, 30% of all claims processed by Doma Typhil insurance involved fraud and forgery, which includes cellar ID fraud claims. According to Doma's chief claims counsel, Chris Chesney, only a few months into 2024, claims involving cellar impersonation have already surpassed full year 2023 levels, and their press release, their claims counts, and film noted that most of these claims result in a full loss of title, meeting one claim can easily cause a loss of $500,000 or more.

Chris Meyer: Domotitial Insurance of the nation's eighth largest title insurer and they understand the importance of intelligent industry leading identity validation technology.

Chris Meyer: In 2023, 30% of all claims played by domicile insurance involved fraud and forgery, which includes seller ID fraud claims.

Chris Chesney: According to DOMA's Chief Claims Counsel Chris Chesney, only a few months into 2044, claims involving seller impersonation have already surpassed full-year 2023 levels.

Speaker Change: In their press release, their claims counsel noted, most of these claims result in a full loss of title, meaning one claim can easily cause a loss of $500,000 or more.

Bryan Lewis: The vast majority of these claims are preventable using our seller verification tool. I appreciated the opportunity to comment in the DOMA press release, and as I stated there, the nationwide surge in real estate scams is a serious threat to transaction security and consumer confidence. Our partnership allows DOMA to deliver the highest level of security that assures peace of mind for title agents and their customers within IntelliCheck's rapid, accurate identity verification technology.

Speaker Change: The vast majority of these claims are preventable using our seller verification tool. I appreciated the opportunity to comment in the DOMA press release, and as I stated there, the nationwide surge in real estate scams are a serious threat to transaction security and consumer confidence.

Speaker Change: Our partnership allows DOMA to deliver the highest level of security that assures peace of mind for title agents and their customers with Intellicheck's rapid, accurate identity verification technology.

Bryan Lewis: Now they can engage good customers with a seamless onboarding experience while preventing fraudulent transactions from occurring. At least one retail client with over 1,700 locations that operates as an Omni Channel platform company committed to elevating financial opportunity for all through innovative, inclusive, and technology-driven financial solutions completed their proof of concept with Intellicheck. The Pia was very successful, and they are now looking to expand beyond their original UK bricks and mortar and more locations with a focus on their LTO product, and we are currently putting the master service agreement in place to do so. The real estate transaction platform we had previously told you was coming on board is now live.

Speaker Change: Now, they can engage good customers with a seamless onboarding experience while preventing fraudulent transactions from occurring.

Speaker Change: Our leased-to-own retail client with over 1,700 locations that operates as an omni-channel platform company committed to elevating financial opportunity for all through innovative, inclusive, and technology-driven financial solutions completed their proof of concept with IntelliCheck.

Speaker Change: The pilot was very successful and they are now looking to expand beyond their original U-CASE for brick and mortar locations with a focus on their LTO product and we are currently putting the master service agreement in place to do so.

Speaker Change: The real estate transaction platform we had previously told you was coming on board is now live. They are in the process of rolling out IntelliCheck's technology to all of their customers.

Bryan Lewis: They are in the process of rolling out Intellicheck's technology to all of their customers. This company is a leading comprehensive digital closing platform used by title, escrow, real estate, and mortgage lending professionals to transform home buying and selling into a simple, secure, enjoyable experience for millions of homeowners each year. The platform provides a system of record for real estate settlement ecosystems through a suite of workflow, accounting, reporting, and collaboration products, as well as its expansive product and service integration. While they only went live near the end of June, their agents are excited, and volumes are increasing.

Speaker Change: This company is a leading comprehensive digital closing platform used by title, escrow, real estate and mortgage lending professionals.

Speaker Change: to transform home-buying and selling into a simple secure and enjoyable experience.

Speaker Change: for millions of homeowners each year. The platform provides a system of record for real estate settlement ecosystems through a suite of workflow, accounting, reporting, and collaboration products, as well as its expansive product and service integrations.

Speaker Change: While they only went live near the end of June, their agents are excited and volumes are increasing.

Bryan Lewis: We also realized great progress with the company we signed, which is dedicated to why our service transfer for prevention. We are now live with the completion of the integration of Intellicheck's State of the Art Identity Platform into their agent platform for our transfer rooms and now other KYC needs. We are also now live with the ID and Credentials Verification App company that is designed specifically for transport and logistics. Given that so many truck drivers are hired remotely, this company is using IntelliCheck to verify drivers' credentials to be sure the drivers are who they say they are.

Speaker Change: We also realized great progress with the company we signed which is dedicated to why our service transfer of prevention. We are now live with the completion of the integration of Intellitech State of the Art Identity Platform into their agent platform for wire transforms and now other KYC needs.

Speaker Change: We are also now live with the ideal credential verification app company that is designed specifically for transport and logistics.

Speaker Change: Given that so many truck drivers are high remotely, this company is using a telechect to verify drivers credentials to be sure the drivers are who they say they are.

Bryan Lewis: We're also signing and went live in record time with the top five title insurance companies that integrated our platform into their portal for title ages to improve overall transaction integrity. The integration enhances the agent's due diligence process mitigates risk and prevents fraud. They are rolling out to their clients this month. We also, in the quarter, signed a proof of concept for a very large food and beverage company to stop fraudulent trailer pickups. They've been dealing with skyrocketing incidents of fraudsters showing up with fake IDs and driving off with trailers loaded with valuable merchandise. They were also concerned about keeping drivers with expired licenses from getting behind the wheel.

Speaker Change: We also signed and went live in record time with the top five title insurance companies that has integrated our platform into their portal for title agents to improve overall transaction integrity.

Speaker Change: The integration enhances agents' due diligence process, mitigates risk, and prevents fraud. They are rolling out to their clients this month.

Speaker Change: We also in the quarter signed a brought live for a proof of concept of very large food and beverage company to stop fraudulent trailer pickups.

Speaker Change: They've been dealing with skyrocketing incidents of fraudsters showing up with fake IDs and driving off with trailers loaded with valuable merchandise.

Speaker Change: They were also concerned about keeping drivers with expired licenses from getting behind the wheel.

Speaker Change: The company has been using Intellitex Verification Technology to authenticate delivery drivers and prove that their license are not expired when making a warehouse trailer picked up. So far, the proof of a concept is going extremely well and they are introducing us to other companies that have the same issues.

Speaker Change: In Q2, we expanded into a new vertical that we believe has large potential. This new client provides employment screening software solutions within the background screening industry. This is another example of our channel strategy.

Speaker Change: There are an estimated 1,268 background check companies in the U.S. We don't want to knock on every door, so we believe that partnering with the people who provide them the tools to run their business makes the most sense.

Speaker Change: Here is yet another example where the critical focus is on knowing that the person our clients are working with is who they say they are. This is an obvious fit for our product in which our technology solution will be used when conducting background checks.

Speaker Change: and since we're talking about background checks, this is yet another way we can work with the universities.

Bryan Lewis: As I have spoken about before, the IntelliCheck Identity Platform first lets you know that the person is who they say they are, and second, gives the user the information they need to know whether they can or want to do business with this person. Universities have the same issue, especially for temporary employees on athletic game days.

Speaker Change: As I have spoken about before, the IntelliCheck Identity Platform first lets you know that the person is who they say they are, and second, gives the user the information they need to know whether they can and want to do business with this person.

Speaker Change: Universities have the same issue, especially for temporary employees on athletic game days.

Speaker Change: We just signed a prominent school in Utah that will be using our platform for ID verification and criminal background checks for this use case. We are currently in discussions with several other universities to do the same thing.

Speaker Change: This represents the third use case we have with universities. Alcohol sales at stadiums, stopping financial aid theft, and now employment.

Bryan Lewis: We believe that this progress illustrates that we continue to diversify into new industries that are not dependent on consumer credit but are dependent on stopping fraud. Regarding the large social media company, additional engineering and development resources have been allocated on the social media side. As we said before, we can only move as fast as a client's move on their side.

Speaker Change: We believe that this progress illustrates that we continue to diversify into new industries. They're not dependent on consumer credit but are dependent on stopping fraud.

Speaker Change: Regarding the large social media company, additional engineering and development resources have been allocated on a social media company side.

Speaker Change: and we said before, we can only move as fast as a client's move on their side. They've informed us that the additional engineering resources have been allocated to project, and we continue to believe that we will be up and running by year end.

Speaker Change: The other large client opportunity, the top three bank that we were anticipating going live by year-end for online authentication, has made some internal changes.

Speaker Change: They have built out an internal team that has taken them in another direction within the organization. And fortunately, it looks like they will be doing something different online. But we still continue to talk to them about in person.

Bryan Lewis: Turning now to our IT initiatives, I'm very pleased to share a quick peek at our exciting new technology advances that will be released later this year. Scheduled for Q3, we will be releasing our new Intellicheck Hub for our customers to access their transaction data and perform self-administration tasks. This provides two important things.

Speaker Change: Turning now to our IT initiatives, I'm very pleased to share a quick peek at our exciting new technology advances that will be released later this year.

Speaker Change: Scheduled for Q3, we will be releasing our new IntelliCheck Hub for our customers to access their transaction data and perform self-administration tasks.

Bryan Lewis: valuable insights to our clients about how transactions are happening and how they can improve their processes, especially in the digital world. Second, it removes a lot of administrative burden from Intellicheck's support staff, freeing them up to provide more value-added services to our clients. This product release reflects our responsiveness to input from clients. We are constantly communicating with our clients to understand their evolving needs and to respond to them.

Speaker Change: This provides two important things.

Speaker Change: valuable insights to our clients about how transactions are happening and how they can improve their process, especially in the digital world. And second, it removes a lot of administrative burden from IntelliCheck's support staff, freeing them up to provide more value-added services to our clients.

Speaker Change: This product release reflects our responsiveness to input from clients. We are constantly communicating with our clients to understand their evolving needs and to respond to them. I'm proud to say that we delivered.

Bryan Lewis: I am proud to say that we delivered. Fraudsters are relentless, and their ever-changing tactics are designed to try to breach the safeguards in place. We are continuously enhancing our e-barification platform to deal with the latest fraud attack. We are implementing and expanding capabilities to include new machine learning and statistical calculations to thwart the latest printed physical fake IDs and generative AI attacks. Our data science team has released new proprietary statistical models that dramatically improve the OCR match process.

Speaker Change: Fraudsters are relentless and their ever-changing tactics are designed to try and defeat the safeguards in place. We are continuously enhancing our ID verification platform to deal with the latest fraud attacks.

Speaker Change: We are implementing and expanding capabilities to include new machine learning and statistical calculations to thwart the latest printed physical fake IDs and generative AI attacks.

Speaker Change: Our data science team has released new proprietary statistical models that dramatically improve the OCR match processing. These features also allow our customers to weight these factors in their own models, something we had not done before.

Bryan Lewis: These features also allow our customers to implement these factors in their own models, something we had not done before. In addition, we continue to enhance document liveness techniques to enable physical ID documents to be presented during an electronic validation flow that uses the end user's phone. These checks can confirm if the documents presented in this session are physical versus printed images or simulated by pointing the camera at another screen, or they can spot edits to the user's picture printed on the front of the ID, which is common with generative AI attacks.

Speaker Change: In addition, we continue to enhance document liveness techniques.

Speaker Change: to enable physical ID documents to be presented during an electronic validation flow that uses the end user's phone.

Speaker Change: These checks can confirm if the documents presented in this session are physical versus printed images, or simulated by pointing the camera at another screen, or they can spot edits to the user's picture printed on the front of ID, which is common with generative AI attacks.

Bryan Lewis: You may recall we introduced a product called Capture to simplify our clients' remote capture of documents. Instead of doing a lot of programming with two simple webhooks to IntelliCheck, we did it for them. It was completely white-labeled, and their clients never knew it was us.

Speaker Change: You may recall we introduced a product called Tapture to simplify our clients remote capture of documents. Instead of doing a lot of programming with two simple web hooks to IntelliCheck, we did it for them. It was completely white labeled and a client's never knew it was us.

Bryan Lewis: We are now providing a similar tool for clients that want to embed us in their proprietary mobile app. With this new tool, our clients can make one call from their mobile app to launch the IntelliCheck identity validation process. Again, this is completely white-labeled within their app, and their customers never even knew it was us.

Speaker Change: We are now providing a similar tool for clients that want to embed us in their proprietary mobile app. With this new tool, our clients can make one call from their mobile app to launch the IntelliCheck Identity Validation process.

Speaker Change: Again, it's completely white-labeled within their app and their customer never even knew it was us. As we like to say, the best identity experience for your customer that they never knew they had.

Bryan Lewis: As we like to say, the best identity experience for your customers that they never knew they had. So before turning the call over to Jeff to discuss our Q2 financial results, I have some fixed feelings as I turn to Jeff one last time to discuss our quarterly results. Jeff, everyone at Intellicheck is grateful to you for all your contributions over the past two years. At the same time, it's hard to say goodbye to someone I think so much of personally and professionally.

Speaker Change: So, before turning the call over to Jeff to discuss our Q2 financial results, I have fixed feelings as I turn to Jeff one last time to discuss our quarterly results.

Speaker Change: Jeff, everyone at Intellicheck is grateful to you for all your contributions over the past two years.

Speaker Change: At the same time, it's hard to say goodbye to someone I think of so much of personally and professionally. And I'm also delighted to introduce our listeners today to Adam Stragravitz, who will be taking over the role of CFO and September 1. Jeff and Adam have already been working together on a seamless transition.

Speaker Change: Jeff has built a solid finance team and under Adam's leadership we believe that we are well positioned going forward. With that I thank Jeff and I turn the call over him to discuss our Q2 results.

Jeff: Thank you, Bryan. I very much appreciate those kind comments.

Jeffrey Ishmael: I'm pleased with the continued progress that we've been making throughout the organization as we continue our efforts to recalibrate our spend and redistribute investment into the areas that we believe will fuel our growth and profitability, as well as continued improvement in both our net income and earnings per share results for the second quarter. We are continuing our focus on the metrics of SAS revenue. As we discussed previously, we have completed the right-sizing of pricing for our legacy accounts, we continue enforcing internal disciplines on CPI increases, and we have continued signing on new customers at higher rates than we have traditionally executed.

Jeff: I'm pleased with the continued progress that we've been making throughout the organization as we continue our efforts to recalibrate our spend and redistribute investment.

Jeff: into the areas that we believe will feel our growth and profitability, as well as continued improvement in both our net income and earnings per share in results for the second quarter.

Speaker Change: We are continuing our focus on the metrics of SAS revenue. As we had previously discussed, we have completed the right sizing of pricing for legacy accounts, we continue enforcing internal disciplines on CPI increases, and we have continued signing on new customers at higher rates than we have traditionally executed.

Jeffrey Ishmael: We remain encouraged by the improvement in our price per scan metric as it continues to speak to the value realized by our new and existing customers. We are also continuing to maintain our focus on operating expenses to ensure that we achieve the expected return on investments in this area. Within the second quarter period, we realized additional benefits of our 2023 restructuring efforts, which contributed to the subsequent improvement in our year-over-year net income results.

Speaker Change: We remain encouraged by the improvement in our price per scan metric as it continues to speak to the testimony of the value realized by our new and existing customers.

Speaker Change: We are also continuing to maintain our focus on operating expenses to ensure that we achieved the expected return on investments in this area.

Speaker Change: Within the second quarter period, we realized additional benefits of our 2023 restructuring efforts, which contributed to the subsequent improvement in our year-over-year net income results.

Jeffrey Ishmael: Turning now to our second quarter results, revenue for the second quarter of 2024 decreased 1% to $4,672,000 compared to $4,716,000 in the same period of 2023. Our SAS revenue for the second quarter of 2024 decreased 0.8% to $4,627,000 and $4,663,000 during the same period of 2023 and represented 99% of our second quarter revenue.

Speaker Change: Turning now to our second quarter results.

Speaker Change: Revenue for the second quarter of 20 24, decreased 1% to 4,672, compared to 4,716,000 in the same period of 2023.

Speaker Change: Our SAS revenue for the second quarter of 2024 decreased 0.8% to $4,627,000 and $4,663,000 during the same period of 2023 and represented 99% of our second quarter revenue.

Jeffrey Ishmael: Gross profit as a percentage of revenues was in line with our expectations at 90.5% for the second quarter of 2024, compared to 92.5% for the same period of 2022. The result is within our previously discussed range of 90 to 91% and is reflective of our rearchitecture efforts as we include planned overlap in our cloud expense feed. The product team has demonstrated that they've been able to maintain reoccurring margins of over 90% throughout the re-architecture process.

Speaker Change: Gross profit as a percentage of revenues was in line with our expectations at 90.5% for the second quarter of 2024, compared to 92.5% for the same period of 2023.

Speaker Change: The result is within our previously discussed range of 90-91% and is reflective of our re-architecture efforts as we incurred planned overlap in our cloud extents fees.

Speaker Change: A product team has demonstrated that they've been able to maintain reoccurring margins of over 90% throughout the rearchitecture projects process.

Jeffrey Ishmael: That being said, we will continue to scrutinize our cost structure with the goal to maintain or improve upon that level. Operating expenses, which consist of selling, general and administrative, marketing, and research and development expenses, decreased $770,000, or 17.3%, to $4,443,000 for the second quarter of 2024, compared to $5,213,000 for the same period of 2023.

Speaker Change: That being said, we will continue to scrutinize our cost structure with the goal to maintain and improve upon that level.

Speaker Change: Operating expenses, which consist of selling general and administrative, marketing, and research and development expenses, decreased $770,000 or 17.3%.

Speaker Change: to 4,443,000 from the second quarter of 2024 compared to 5,213,000 from the same period of 2023.

Jeffrey Ishmael: Included within operating expenses for the second quarter of 2024 and 2023, or 72,000 and $323,000, respectively of non-cash equity compensation expense. Additionally, in the second quarter, we recognize 781,000 in software capitalization tied to our re-architecture efforts. While this is higher than our prior guidance, the product team was able to accelerate the re-architecture efforts in the second quarter and complete the process they kicked off in the fourth quarter of 2023. The product team, which was supporting multiple implementation projects, leaned heavier on external consultants to complete the re-architecture efforts within their originally committed second quarter timeframe.

Speaker Change: Included within operating expenses for the second quarter of 2024 and 2023 or $72,323,000 respectively of non-cash equity compensation expense.

Speaker Change: Within the second quarter, we recognize 781,000 in software capitalization tied to our re-architecture efforts. Well, this is higher than our prior guidance, the product team was able to accelerate the re-architecture efforts in the second quarter and complete the process they kicked off in the fourth quarter of 2023.

Speaker Change: A product team, which was supporting multiple implementation projects, leading heavier on external consultants to complete the re-architecture efforts within their originally committed second quarter time frame.

Jeffrey Ishmael: On a constant basis, adding back in our capitalized software expense, our operating expenses as a percentage of revenues increased 128 basis points against the same period of 2023. Turning to net income, we adjusted you a bit.

Speaker Change: On a constant basis, adding back in our capitalized software expense, our operating expenses as a percentage of revenues increased 128 basis points against the same period of 2023.

Jeffrey Ishmael: The company's net income improved by 726,000 or 83% to a net loss of 127,000 from the second quarter of 2024, compared to a net loss of 853,000 from the same period of 123. The net loss per deluded share for the second quarter of 2024 improved by three cents to a net loss of one cent for each deluded share compared to the net loss of four cents per deluded share for the same period The weighted average number of outstanding common shares was 19.5 million for the second quarter of 2024 compared to 19.1 million for the same period of 2020. Adjusted EBITDA, earnings before interest and other income, provision for income taxes, sales tax accruals, depreciation, amortization, stock-based compensation expense, and certain non-reoccurring charges decreased by 106,000, resulting in a loss of 70,000 compared to a The balance sheet remains strong when we finish the second quarter with $7.3 million in cash and short-term investments.

Speaker Change: turning to net income and adjusted EBITDA.

Speaker Change: The company's net income improved by $726,000, or 83%, to a net loss of $127,000 for the second quarter of 2024, compared to a net loss of $853,000 for the same period of 2023.

Speaker Change: Net loss per diluted share for the second quarter of 2024, improved by three cents to a net loss of one cent for shared diluted share compared to the net loss of four cents per diluted share for the same period of 2023.

Speaker Change: The weighted average diluted common shares were $19.5 million for the second quarter of 2024, compared to $19.1 million for the same period of 2023.

Speaker Change: Adjusted EBITDA, earnings to poor interest and other income, provision for income taxes, sales tax accruals, depreciation, amortization.

Speaker Change: Stock base compensation, expense, and certain non-reoccurring charges decreased by 106,000 resulting in a loss of 70,000 compared to a gain of 36,000 from the same period 2023.

Speaker Change: Our balance sheet remains strong when we finish the second quarter with $7.3 million in cash and short-term investments. We also continue to ensure we are properly managing our cash reserves, which generated $88,000 in interest income during the second quarter versus an absence of interest income in the same period of 2023.

Jeffrey Ishmael: We also continue to ensure we are properly managing our cash reserves, which generated $88,000 in interest income during the second quarter versus an absence of interest income in the same period of 2023. Turning now to the progress on our internal initiatives, 2024 continues to represent a year of execution as we will continue to pivot off our 2023 restructuring effort and deploy our spend into meaningful marketing and brand initiatives that we believe will drive top-line revenue.

Speaker Change: Turning now to the progress on our internal initiatives. 2024 continues to represent a year of execution as we will continue to pivot off our 2023 restructuring effort and deploy our spend into meaningful marketing and brand initiatives that we believe will drive top-line revenue.

Jeffrey Ishmael: As we have previously discussed, we have successfully executed on a material shift in our expenses, and we have taken previously allocated DNA spending and moved it into support for trade shows, regional conferences, and other brand initiatives. As Bryan discussed in our last call, quick strike efforts across the team have resulted in the attendance of six trade shows in the first half of 2024, with additional shows planned in the second half of the year.

Speaker Change: As we have previously discussed, we have successfully executed on a material shift in our expenses where we have taken previously allocated G&A spend and moved that into support for trade shows, regional conferences, and other brand initiatives.

Speaker Change: As Bryan discussed in our last call, quick strike efforts across the team have resulted in the attendance of six trade shows in the first half of 2024, with additional shows planned in the second half of the year.

Speaker Change: This is a key call out as the company, outside of targeted meetings, did not have a physical presence at any trade shows since prior to COVID.

Speaker Change: While we have historically not segregated our sales and marketing expenses, this portion of our operating expenses are up 21% versus the prior year and comprise 34% of our total operating expenses versus 24% in the prior year.

Speaker Change: Turning to our R&D expenses, and as we have previously communicated, our R&D spend continued to decrease year over year during the second quarter as we completed our re-architecture efforts within the targeted second quarter time frame.

Jeffrey Ishmael: As previously guided for 2024, we expect our R&D to comprise no more than 18 to 20% of our operating expenses moving forward, which compares to approximately 30% during the 2020 to 2022 period, which we then subsequently reduced to approximately 22% in 2023. This change in spend composition has supported the re-architecture of the product platform, which has been a three-quarter focus of Jonathan and the product team, along with the bolstering of our data science efforts, which we expect will result in a higher level of service and reporting for our customers.

Speaker Change: As previously guided for 2024, we expect our R&D will comprise no more than 18 to 20% of our operating expenses moving forward.

Speaker Change: which compares to approximately 30% during the 2020 to 2022 period, which we then subsequently reduced to approximately 22% in 2023.

Speaker Change: This change in spend composition has supported the re-architecture of the product platform, which has been a three-quarter focus of Jonathan and the product team, along with the bolstering of our data science efforts, which we expect will result in a higher level of service and reporting for our customers.

Speaker Change: Overall, we expect to continue seeing leverage increases in our OPEX spend against our anticipated growth in the latter half of 2024 and into 2025.

Jeffrey Ishmael: Overall, we expect to continue seeing leverage increases in our OPEX spend against our anticipated growth in the latter half of 2024 and into 2025. Furthermore, we have been significantly increasing program spend on the sales and marketing side of the business to drive top-line revenues.

Speaker Change: While we have been significantly increasing program spend on the sales and marketing side of the business to drive top-line revenues, we believe we are still properly structured in our headcount and expect a 2024 year-end headcount that will be approximately equal to the headcount we finished with in 2022.

Speaker Change: We believe that we now have a significantly higher caliber team that has the financial support and data analytics to drive the growth that we expect this brand should be able to achieve.

Speaker Change: As mentioned in earlier remarks, we continue to stay focused on our cost structure, which when adjusted for previously mentioned software capitalization, continues to show improved leverage versus prior years.

Jeffrey Ishmael: The result is consistent with our focus on bringing down our operating expenses as a percentage of revenues, which averaged 135% of our SAS revenues during the 2020 and 2022 periods. We remain committed to improving our adjusted EBITDA results for the year, a commitment that we exceeded last year and now puts us on a position to start moving our results into a more positive position for 2024. As discussed in our last call, improved ingestibility of the results for 2024 will be the combined disciplines of executing on our revenue plans, ensuring consistency in our gross margins, and holding all the team accountable to their FY24 operating budget.

Speaker Change: The result is consistent with our focus on bringing down our operating expenses as a percentage of revenues, which average 135% of our SaaS revenue is during the 2020-2020 period.

Speaker Change: We remain committed to improving our adjusted EBITDA results for the year, a commitment which we exceeded last year and now puts us on a position to start moving our results into a more positive position for 2024.

Speaker Change: As discussed in our last call, improved adjusted EBITDA results for 2024 will be the combined disciplines of executing on our revenue plans, ensuring consistency in our gross margins and holding all the team accountable to their FY24 operating budgets.

Jeffrey Ishmael: During the prior quarter, we also discussed the continued cultivation of partnerships and the development that was being done with recognized hardware companies, and I'm encouraged by the foundation that has been laid over the last three quarters since the program was initiated. Since the proper launch of the program in the fourth quarter, we have finalized agreements with 21 partners and have another 10 scheduled to be assigned by the end of Q3. The partner count is higher than we were originally targeting, so the key focus and the second half of the year would be fully activating these new partners and generating meaningful bookings and revenues to fuel growth in 2025.

Speaker Change: During the prior quarter, we also discussed the continued cultivation of partnerships and the development that was being done with recognized hardware companies, and I'm encouraged by the foundation that has been getting laid over the last three quarters since the program was initiated.

Speaker Change: Since the proper launch of the program in the fourth quarter, we have finalized agreements with 21 partners and have another 10 scheduled to sign by the end of Q3.

Speaker Change: This partner count is higher than we were originally targeting, so the key focus in the second half of the year will be fully activating these new partners and generating meaningful bookings and revenues to fuel growth in 2025.

Jeffrey Ishmael: We've been actively cultivating new partners across identity access management platforms, hardware OEMs, as well as an expansion of our real estate and automotive partnerships, which Chris had originally started cultivating. In consideration of our second half 2024 outlook, we expect to see continued gross margins of approximately 90 to 91% while we continue to improve our architecture and data intelligence capabilities. We also expect to see continued leverage in our operating expenses as a result of the expense initiatives we implemented in 2023. As previously discussed, we expect the non-cash component of our spend to decrease by four to 500 basis points versus 2023, with 90% of that being total stock-based compensation.

Speaker Change: We've been actively cultivating new partners across identity access management platforms, hardware OEMs, as well as an expansion of our real estate and automotive partnerships, which Chris had originally started cultivating.

Chris: In consideration of our second half 2024 outlook, we expect to see continued gross margins of approximately 90 to 91 percent while we continue to improve our architecture and data intelligence capabilities.

Speaker Change: We also expect to see continued leverage in our operating expenses as a result of the expense initiatives we implemented in 2020-23.

Speaker Change: As previously discussed, we expect the non-cash component of our spend to decrease by 400 to 500 basis points versus 2023 with 90% of that being total stock-based compensation.

Jeffrey Ishmael: In closing, I want to thank everyone on the Intellicheck team for allowing me the opportunity to join them and providing the necessary support to make the meaningful changes we have implemented over the last two years plus. I'm pleased that we've been able to leave Bryan and Adam with a solid financial reporting and forecasting platform, an improved and healthy auditor relationship, and a remediation of open historical accounting issues that existed prior to my arrival.

Speaker Change: In closing, I want to thank everyone on the Intellicheck team for allowing me the opportunity to join them and providing the necessary support to make the meaningful changes we have over the last two years plus.

Speaker Change: I'm pleased that we've been able to leave Bryan and Adam a solid financial reporting and forecasting platform.

Speaker Change: an improved and healthy auditor relationship and a remediation of open historical accounting issues that existed prior to my arrival.

Jeffrey Ishmael: I'm confident that all the necessary support mechanisms are in place for Bryan and Adam to focus on accelerating the growth opportunities that are available to this company. I look forward to listening to our Q3 results with all of you in November, hosted by Bryan and Adam.

Speaker Change: I'm confident that all the necessary support mechanisms are in place for Bryan and Adam to focus on accelerating the growth opportunities that are available to this company. I look forward to listening to our K-3 results with all of you in November , hosted by Bryan and Adam.

Speaker Change: I'll see you in the next video.

Operator: Ladies and gentlemen, we are now going to have a good time for your question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press start, too, if you'd like to remove your question from me. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the start button. And our first question comes from Jeff Van Ree with Craig Howland Capital Group. Please proceed. Hey guys, thanks for taking my questions, Daniel on.

Speaker Change: Thank you.

Speaker Change: Ladies and gentlemen, we will now begin to answer your question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants, use your speaker equipment and anything necessary to pick up your headset before pressing the star keys.

Speaker Change: And the first question comes from the line of Jeff Foundry with Craig Hound, Capitol Group. Please proceed.

Daniel Hibshman: Hey guys, thanks for taking my question. This is Daniel speaking on behalf of Jeff. Just on retail, if we could double-click on that in the headwinds there, are you seeing retail customers coming back on actually use cases, the number of locations that they're deploying a solution, or is this more just them seeing less volume and naturally having less account openings, less, you know, card not present uses, et cetera?

Bryan Lewis: Scott Buck, Michael Grondahl, Bryan Lewis, Henry Farrell, Guy Smith, Daniel Hibshman, all of their stores. So there's a combination of that. And then I think just, you know, we're seeing less traffic in a way, certainly, credit card debt is up huge, and delinquencies are up. So, you know, I think part of it is just consumers are having a problem with credit. And I don't think they're shopping as much, which shows in some of the retailers' earnings. So, no, nobody is using it in the way that they used it before. Nobody is not using it in stores that are open. It is really some economic factors, bankruptcies, and downsizing of the retailers.

Speaker Change: Hey guys, thanks for taking my question. This is Daniel on for Jeff. Just on the retail, if we could double click on that in the headwinds there.

Daniel: Are you seeing the retail customers cutting back on actual use cases, the number of locations that they're deploying the solution, or is this more just them seeing less volume and naturally having less account openings, less, you know, card not present uses, etc.?

Speaker Change: In fact, using the product or stuff using it in any form that they used to use it before.

Speaker Change: And unfortunately, the only time we're seeing that they're using it in less stores is because they're closing them.

Speaker Change: You know, so we've got, you know, one of our, one of the retailers that comes to us through a bank.

Speaker Change: is talking about shutting down 300 stores.

Speaker Change: We had one retailer, as we discussed, that comes directly to us.

Speaker Change: You know, declared bankruptcy and is shutting down all of their stores.

Speaker Change: So there's a combination of that, and then I think just, you know...

Speaker Change: We're seeing less traffic in a way and certainly, you know, credit card debt is up huge. The link with these are up so, you know, I think part of it is just consumers.

Speaker Change: are having problem with credit and I don't think they're shopping as much which shows in some of the retailers.

Speaker Change: their earnings. So no, nobody is not using it in any way that they used it before. Nobody is not using it in stores that are open. It is really some economic factors, bankruptcies, and downsizing of the retailers.

Bryan Lewis: Makes sense. And then just last quarter, you quantified retail volumes as being down, I believe, 10% year over year. Do you have that number this quarter?

Speaker Change: makes sense. And then just last quarter, if you quantify the retail volumes is being down, I believe 10% year over year, do you have that number this quarter?

Bryan Lewis: Yeah, overall, they're down about 16% year over year. And it's a variation, you know, some electronics, you know, electronics and sorting goods are up, you know, and then everything else is, you know, down, you know, varying levels depending on which particular vertical we're talking about, you know, a parallel, you know, and department stores and home improvement are all slightly different, but, you know, for the most part, down.

Speaker Change: Yeah, overall they're down about 16% year over year.

Speaker Change: And it's a variation, you know, some, like I said, electronics.

Speaker Change: You know, electronics and sporting goods are up.

Speaker Change: and then everything else is down, you know, a varying level, depending on which particular vertical we're talking about, you know, a parallel, you know, and department stores and the home improvement are all slightly different, but you know, for the most part down.

Bryan Lewis: Okay, thanks. The quantification is super helpful. And then, just last of all, how would you advise us to think through modeling this going forward in terms of the retail decline and how you would think about that playing out in the next few quarters relative to this?

Speaker Change: Okay, thanks. The quantification is super helpful. And then just last of all, how would you advise us thinking through modeling this going forward in terms of the the retail decline and how you would think about that playing in into the next few quarters relative to this one? Thanks.

Bryan Lewis: It's, in a way, it's hard to say because I think a lot of it's tied to, you know, how the economy does, you know. So I'm kind of looking at this and what I'm excited about is if you think about it, our largest revenue sector is down 16%, right? But we're flat, which in my mind shows that, you know, diversifying into other sectors that aren't as dependent upon consumer credit really matters. And then, again, the way I look at it is this way.

Bryan Lewis: Look, I think

Speaker Change: Look, I think it's in a way it's hard to say, because I think a lot of it's tied to, you know, however, the economy does, you know, so I'm kind of looking at this is, you know, what I'm excited about is, if you think about it, our largest

Speaker Change: revenue sector is down 16% right but we're flat which in my mind shows that you know diversifying into other sectors that aren't as dependent upon consumer credit really matters and then and then again the way I look at it is

Bryan Lewis: When the economy does turn around, thank you very much for the tailwind of retail picking up in addition to all of the new verticals that we're getting into. And there are a lot of good verticals out there that we're getting into, you know. I just, even, I just, right before the call, because we're starting to get in, we have some property management, we're getting more into more of it, but 93.3% of all residential property operators said that they had experienced fraud.

Speaker Change: When the economy does turn around, thank you very much for the tailwind of retail picking up in addition to all of the new verticals that we're getting into.

Speaker Change: and there's a lot of good verticals out there that we're getting into. I just right before the call, because we're starting to get in, we have some property management and getting more into more of it, but 93.3%.

Speaker Change: of all residential property operators said that they had experienced

Bryan Lewis: And the National Apartment Association recommends stricter ID checks, which is probably why we're seeing inbound leads from that stuff. So I think that, you know, the diversification is working. The economy is probably, you know, certainly a headwind when it comes to, you know, our big sector of retail. But when the economy turns around, I'm going to love that tail.

Speaker Change: Fraud.

Speaker Change: And the National Apartment Association recommends stricter ID checks, which is probably why we're seeing inbound leads from that stuff.

Speaker Change: So, I think that, you know, the diversification is working. The economy is probably, you know, certainly a headwind when it comes to, you know, our big sector of retail. The economy turns around, I'm going to love that tailwind.

Bryan Lewis: Thanks for taking my questions and best wishes for any teacher and every staff member. Thank you, guys; it's a good one.

Speaker Change: Thanks for taking my questions and best wishes for any future endeavors, Jeff.

Jeff Foundry: Thank you, guys. Good one.

Operator: And our next question comes from the line of Rudy Kessinger with D.A. Davidson. Please proceed.

Jeff Foundry: Our next question comes from the line of Rudy Kessinger with D.A. Davidson. Please proceed.

Andres: Hey, this is Andres speaking for Rudy. I guess, following up from the previous question, excluding the seasonal strength that we saw in Q4, staff revenue has been effectively flat since Q2 of last year.

Jeff Foundry: Hey, this is Andres for Rudy. I guess following up from the previous question. Excluding this Israel extrancy, we saw in Q4, start revenue has been effectively flat since.

Andres: Q2 of last year, if you could put a finer point of why that is extremely, because of this come volume decline or the retailers, if you could break it down a little bit more I'll be okay.

Bryan Lewis: But, I mean, again, when we have our largest sector, right? And I'm going to go back to it, that if we hadn't, you know, about a year ago, really started working with channel partners and getting into other sectors, we would have been down, because retail was down so much, right? When, again, the sector that represents probably about 95% of our revenues is down 16%, you know, that would not be good.

Speaker Change: But, I mean, again...

Speaker Change: when we have, you know, our largest sector, right, and I'm going to go back to it that if we hadn't, you know, about a year ago, really started working with channel partners.

Speaker Change: and getting into other sectors.

Jeff Foundry: We would have been down because retail was down so much, right? When, again, the sector that represents probably about 95% of our revenue is down 16%.

Bryan Lewis: But we're flat, basically, because of the other sectors that we have been selling into that aren't so dependent upon consumer credit or somebody going into a store and, you know, doing an account lookup when buying merchandise on credit.

Jeff Foundry: That would not be good. But we're flat, basically, because of the other sectors that we have been selling into that aren't so dependent upon consumer credit, or somebody going into a store and doing an account lookup when buying merchandise on credit.

Bryan Lewis: So, you know, that is the story, you know, it's that retail is off, our other sectors are a combination of up, and also up at higher prices, you know, again, new business sales are at significantly higher rates than our traditional long term clients that are, you know, represent most of this retail. So, understanding pricing power, understanding new markets is what's, you know, helping us, you know, drive growth. And then, you know, quite frankly, when we get some of these large clients that we've been waiting for, to get their resources available, so that they can complete the implementation on their side, for whatever it is, they need internal compliance systems or other things like that, you know, once they go, you know, that's sort of the, you know, the hard part of, in a way, hunting whales, you know, we've got a lot of singles and doubles that keep us growing, you know, quarter to quarter or, you know, filling in the holes sort of created by retail being off.

Speaker Change: So, yeah, yeah

Jeff Foundry: that is the story. You know, it's that retail is off, our other sectors are a combination of up and also up at higher prices. You know, again, new business sales are at significantly higher rates.

Jeff Foundry: and then our traditional long-term clients that represent most of this retail.

Jeff Foundry: So, understanding pricing power, understanding new markets is what's helping us drive growth.

Jeff Foundry: and then, you know, quite frankly, when we get some of these large clients that we've been waiting for to get their resources available so that they can complete.

Bryan Lewis: the implementation on their side, so whatever it is, they need internal compliance systems or other things like that, you know, once they go.

Bryan Lewis: You know that sort of

Jeff Foundry: You know, the hard part of, in a way, hunting whales.

Bryan Lewis: You know, we've got a lot of singles and doubles that keep us growing, you know, quarter-to-quarter or, you know, filling in the holes sort of created by retail being off, but we're almost, with our whales, we're very much a step-function kind of revenue company.

Bryan Lewis: But we're almost with our whales; we're very much a step function kind of revenue company, so that when a whale turns on, you know, there's an immediate large lift. And we've got some whales that have been waiting for their own internal resources to go live, you know, and now that some of these whales have told us that they've got the resources in place, you know, I'm very much looking forward to it, but it's just a matter of when, and we can't control that, you know. As we said in the prepared remarks, we are, in a way, at the mercy of So, you know, you know. That's what I think the story is. Diversification is working, pricing is working, and new verticals are filling in for the retail vertical being off.

Bryan Lewis: So that when a whale turns on, you know, there's an immediate large lift. And we've got some whales that have been waiting on their own internal resources.

Bryan Lewis: to go live. You know, and now that some of these whales have told us that they've got the resources in place, you know, I'm very much looking forward to it. But it's just a matter of when. And we can't control that, you know, as we said in the prepared remarks.

Bryan Lewis: We are in a way at the mercy of our clients running through their whole QA processes and all that kind of stuff

Bryan Lewis: So, you know, that's what I think the story is, diversifications working, pricing is working, new verticals are filling in for the retail vertical being lost.

Jeffrey Ishmael: Hey Bryan, if I can pop in for a second, I just want to clarify that, unless I misheard that comment about SAS revenues being flat over the last four quarters, that's actually not the case. When you take a look, going back at least to Q2 of last year, I mean, we had an average of 14% growth. I mean, this is the first quarter where we've actually shown a flat quarter year over year, and as Bryan mentioned, primarily due to what's happening in the retail channel.

Jeffrey Ishmael: Hey, Bryan, if I can pop in for a second, I just want to clarify unless I misheard that comment about fast revenues being flat over the last four quarters, but that's actually not the case. When you take a look going back at least two.

Bryan Lewis: Q2 of...

Jeffrey Ishmael: last year. I mean, we had an average of 14% growth. I mean, this is the first quarter where we've actually shown a flat quarter year over year. And as Brian mentioned, primarily attributed to what's happening in the retail channel. But, you know, we were in the we were in the teens, the mid of 23.

Jeffrey Ishmael: But we were in the teens, the mid of 23, and then getting into 9% in Q1, but over those last four quarters, it was 14%. This is the first quarter that we've really seen the effect of what's happening out in retail.

Jeffrey Ishmael: And then, you know, getting into like 9% on Q1, but, you know, over those last four quarters, it was 14%. This is the first quarter that we've really seen the effect of what's happening out in retail.

Jeffrey Ishmael: Yeah, thanks, yeah. Okay, thank you. Just one more time, could you give us any sense of the sales revenue going forward for the next two quarters? Any color that will help our models here that will also be helpful?

Speaker Change: Okay, thank you.

Jeffrey Ishmael: Yes, just one more if I may. Could you give us any sense of the sales revenue going forward for the next two quarters? Any caller that will help our models here, that would also be helpful.

Speaker Change: We never give in revenue guidance if that's what you're looking for.

Bryan Lewis: Well, yeah, I know, but I'm just looking for some color. Given that you said before that SARS revenue would reaccelerate for the second half, are you still expecting that reacceleration to happen? Yeah.

Bryan Lewis: Well, yeah, I know, but I'm just looking, of course, I'm a caller given that you said before that us as revenue will re-acelerate for the second half, are you still expecting that re-aceleration to happen?

Speaker Change: you know here's what I said I can't predict the economy right you know if if we are in the same

Speaker Change: economic place with retail as we were last year, I'd say that things certainly would be accelerating. What I am, you know, saying is, you know, other market verticals other than retail are accelerating. It is now just a matter of can they offset?

Bryan Lewis: What is going on in the retail world? And, you know, I'm far from an economist, so I can't say that. But, what I will say is that I know what we're doing in other verticals, and I'm happy with it.

Bryan Lewis: What is going on in the retail world and, you know, I'm far from an economist, so I can't say that, you know, what I will say is

Bryan Lewis: I know what we're doing in other variables. I'm happy with it. I like the pricing being higher. You know, we're, you know, new business, right, which I think is important to know. Our new business prices continues to rise.

Bryan Lewis: I like the pricing being higher. You know, we're, you know, a new business, right? Which I think is important to denote.

Bryan Lewis: Our new business high prices continue to rise. We're selling more into different verticals that aren't as dependent on the consumer going in and buying a shirt or whatever it is. You know, I think the things that we're looking at, background checks have to happen, right? Who are you when you're renting our apartment?

Bryan Lewis: We're selling more into different verticals that aren't as dependent on the consumer, going in and buying a shirt or whatever it is.

Bryan Lewis: You know, I think the things that we're looking at, you know, background checks have to happen, right? Who are you when you're renting an apartment has to happen, you know, how do we protect your email account has to happen no matter what happens with the economy.

Bryan Lewis: So...

Bryan Lewis: We're going to continue to focus on, certainly we're not giving up on retail. That's going to be, it's a great business for us, will continue to be, and we want to get as many retailers as we can because we solve a good problem there. But we're also going to be focusing

Bryan Lewis: on the rest of the market so that we're not a one-trick pony when it comes to revenue.

Bryan Lewis: So, Ana Seed, a lot depends on the economy. We are executing well on our strategy of going after other verticals, and hopefully, it not only offsets but increases any loss, increases the revenue even though we're losing some on retail.

Bryan Lewis: So, honestly,

Bryan Lewis: A lot depends on the economy. We are executing well on our strategy of going after other verticals, and hopefully it not only offsets.

Bryan Lewis: but, you know, increases, you know, any loss of, you know, increases of the revenue even though we're losing some on retail.

Bryan Lewis: and Scott Buck. One quick, you said pricing was 11% up, year over year. You start right now.

Speaker Change: Sounds good. One quick, you said pricing was 11% up, year over year. You start right? Now, the 11% number that was given out, I think Jeff talked about 10% year over year. The 11% was new business.

Bryan Lewis: Now, the 11% number that was given out, I think Jeff talked about 10% year over year; the 11% was the new business average price per transaction from Q1 to Q2 of this year. Not it, thank you. Yeah, walk, walk, walk. Yeah, while we, if you, we, we, we, we,

Bryan Lewis: average price per transaction from Q1 to Q2 of this year.

Bryan Lewis: Not it, thank you. Yeah, well, we always look at the price activity within new business, existing business, what's happening, the channel that I'm always presenting it on, the number that I've always referenced over the prior quarters has always been from a macro perspective. So we've never, we've never dove into the details of any one particular channel and in a price increase.

Bryan Lewis: Thank you. Yeah, well, we always look at the price activity within new business, existing business, what's happening, channel that.

Bryan Lewis: I'm always presenting it and the number that I've always referenced over the prior quarters has always been from a macro Perspective so we've never we've never dove into the details of any one particular channel and you know price increases right

Bryan Lewis: Thank you. Don't know further questions at this time. I would like to turn the card back to Bryan Lewis for closing the box. So, thank you.

Bryan Lewis: Thank you. There are no further questions at this time. I'd like to turn the call back to Bryan Lewis for closing remarks.

Bryan Lewis: So, thanks everybody for joining us on the call today. I hope you can tell from, you know, just the last question about the new verticals and everything about how excited I am about the new opportunities that we have for growth. I think diversification is an important part of our strategy, and I think it shows that it's working. You know, there are plenty of market verticals that we can get into because people do need to know who you are. You know, I always say that if I get your email account, I can steal every account you have.

Bryan Lewis: So, thanks everybody for joining us on the call today. I hope you can tell from just the last question about the new verticals and everything about, you know, how excited I am.

Bryan Lewis: about the new opportunities that we have for growth. I think diversification is an important part of our strategy and I think it shows that it's working.

Bryan Lewis: There are plenty of market verticals that we can get into because people do need to know who you are. I always say that if I get your email account, I can steal every account you have.

Bryan Lewis: You know, now again, this whole thing with apartments, you know, it's probably why we keep seeing inbound leads in that area. The market, I think, continues to grow for us. You know, we continue to improve our products and our staff and all their capabilities, and I believe we will remain an industry leader, and I look forward to our next call. Thank you all for joining us.

Bryan Lewis: You know, now, again, this whole thing with apartments.

Bryan Lewis: It's probably why we keep seeing inbound leads in that area. The market, I think, continues to grow for us.

Bryan Lewis: You know, we continue to enrich our products and our staff.

Bryan Lewis: and all their capabilities and I believe we'll remain an industry leader and I look forward to our next call and thank you all for joining us.

Operator: This concludes today's conference. You may now disconnect your lines at this time. Enjoy the rest of your day.

Operator: This concludes today's conference. You may now disconnect your want at the best time. Enjoy the rest of your day.

Operator: Music

Speaker Change: Hello, everyone.

Andres: We never give in to revenue guidance if that's what you're looking for.

Bryan Lewis: Here's what I said. I can't predict the economy, right? If we were in the same economic place with retail as we were last year, I'd say that things certainly would be accelerating. What I am saying is, you know, other market verticals other than retail are accelerating. It is now just a matter of whether or not they can offset each other.

Bryan Lewis: We don't want to knock on every door, so we believe that partnering with the people who provide them with the tools to run their business makes the most sense. Here is yet another example where the critical focus is on knowing that the person our clients are working with is who they say they are. This is an obvious fit for our product, in which our technology solution will be used when conducting background checks, and since we're talking about background checks, this is yet another way we can work with the university.

Jeffrey Ishmael: We believe we are still properly structured in our headcount for the expected 2024 year-end headcount that will be approximately equal to the headcount we finished with in 2022. We believe that we now have a significantly higher-caliber team that has the financial support and data analytics to drive the growth that we expect this brand should be able to achieve. As mentioned in earlier remarks, we continue to stay focused on our cost structure, which when adjusted for the previously mentioned software capitalization, continues to show improved leverage versus prior years.

Bryan Lewis: We just signed a prominent school in Utah that will be using our platform for ID verification and criminal background checks for this use case. We are currently in discussions with several other universities to do the same thing. This represents the third use case we have with the university, alcohol sales and stadiums, stopping financial aid theft, and now employees.

Bryan Lewis: And another is a home discount retailer closing down a significant number of stores. This reinforces why we believe that it's becoming ever more important to continue to expand our reach outside of traditional retailers and to new into the new verticals we have been focusing on. When comparing to Q1 of this year, we saw an 11% sequential increase in our new customer average price per scan. This increase speaks to our diversification strategy and newer verticals having a higher price per scan.

Jeffrey Ishmael: This is a key call out as the company, outside of targeted meetings, did not have a physical presence at any trade show since the fire to COVID. While we have historically not segregated our sales and marketing expenses, this portion of our operating expenses is 21% versus the prior year and comprises 34% of our total operating expenses versus 24% in the prior year. Turning to our R&D expenses, and as we have previously communicated, our R&D spend continued to decrease year over year during the second quarter as we completed our re-architecture efforts within the targeted second quarter timeframe.

Bryan Lewis: And I'm also delighted to introduce our listeners today to Adam Stragervitt, who will be taking over the role of CFO on September 1. Jeff and Adam have already been working together on a seamless transition. Jeff has built a solid finance team, and under Adam's leadership, we believe that we are well-positioned going forward. With that, I thank Jeff, and I turn the call over to him to discuss our Q2 results. Thank you, Bryan. I very much appreciate those kind comments.

Bryan Lewis: They've informed us that the additional engineering resources have been allocated to the project, and we continue to believe that we will be up and running by year-end. The other large client opportunity, the top three bank that we were anticipating going live by year-end for online authentication, has made some internal changes. They have built out an internal team that is taking them in another direction within your organization. And fortunately, it looks like they will be doing something different online. But we still continue to talk to them in person.

Bryan Lewis: Over his past nine years with Intellicheck, Chris has been responsible for bringing on board many of our largest customers that generate a significant portion of our revenues. We are all very excited to allow Chris to focus exclusively on generating sales while Sandra focuses on the customer experience and account management. Along with working in conjunction with the IT team to drive rapid and successful implementation. Turning now to our Q2 wins, DOMA Title Insurance is one of our newest clients, and we are very excited to see their press release on August 6th, highlighting the partnership in which DOMA independent title agents and approved attorneys are now able to use IntelliCheck to detect seller impersonation fraud.

Bryan Lewis: The Intellicheck Identity Platform allows our customers to confirm that the person they are entering into a transaction with is who they say they are and that they can and want to do business with them. And they are able to do it so quickly, easily, and seamlessly, without the need for new hardware. Because of our proven technologies and high degree of accuracy, the simple first step allows the transaction to go forward with confidence, facilitating the onboarding of new good customers while assuring bad actors will not be successful.

Gar Jackson: These forward-booking 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 county undertakes no obligation to, and expressly displays without any obligation, update or alter its forward-booking statements whether resulting from such changes, new information, subsequent events or otherwise. Additional information concerning forward-booking statements is contained under the headings of the safe harbor statement and risk factors listed from time to time in the county's filings with the securities and exchange committee.

Bryan Lewis: The company has been using Intellicheck's verification technology to authenticate delivery drivers and prove that their license is not expired when making a warehouse trailer pickup. So far, the proof of concept is going extremely well, and they are introducing us to other companies that have the same issue, and in Q2, we expanded into a new vertical that we believe has great potential. This new client provides employment screening software solutions within the background screening industry. This is another example of our channel strategy. There are an estimated 1,268 background check companies in the US.

Bryan Lewis: It has to happen, you know. How do we protect your email account? It has to happen, no matter what happens with the economy. We're going to continue to focus on certainly we're not giving up on retail. That's going to be it's a great business for us. We'll continue to be, and we want to get as many retailers as we can because we solve a good problem there. But we're also going to be focusing on the rest of the market so that, you know, we're not a one-trick pony when it comes to revenue.