Earnings Call Transcript - IDN Q1 2025

Operator, Operator

Greetings and welcome to the Intellicheck First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gar Jackson, Investor Relations. Thank you, sir. You may begin.

Gar Jackson, Investor Relations

Thank you, operator. Good afternoon and thank you for joining us today for the Intellicheck first quarter 2025 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 headings of Safe Harbor statement and risk factors listed from time to time in the company's filings with the Securities and Exchange Commission. Statements made on today's call are as of today, May 13, 2025. Management will use the financial term adjusted EBITDA and adjusted gross margin in today's call. Please refer to the company's press release issued this afternoon for further definition, reconciliation and context for the use of these terms. We will begin today's call with Bryan Lewis, Intellicheck's Chief Executive Officer; and then Adam Sragovicz, the Chief Financial Officer, who will discuss the first quarter 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 Bryan.

Bryan Lewis, CEO

Thanks, Gar and good afternoon everyone and thank you for joining us for our first quarter 2025 earnings call. Although it has been less than two months since we last spoke, a lot of things have happened over that span of time. Before I get started with the discussion about our recent achievements, I would like to put some things into perspective. We've heard from a number of people that said, 'Yes, I've looked at this company and there's nothing to see'. I usually quickly respond by saying, 'You looked at the old Intellicheck, right?' Since I joined the company, we've grown our recurring revenue stream from under $2 million per year to almost $20 million last year. So quite a difference. In fact, already in Q1 of this year, including upsells and price increases, we renewed $10 million in annual contract value, demonstrating how sticky we are with our customers. On the technology front, we completely retooled our tech stack over the course of the past couple of years, taking advantage of AI and data science analysis because we see the information on about 100 million people in North America every year. We are also making terrific progress on our platform migration program. We are well underway with migrating our clients from Azure platform to AWS which will result in cloud savings. Just as important, it will allow for quicker and easier onboarding of new clients and gives us improved data feeds for additional analytics. As we move forward with the implementation of our strategic initiatives, we continue to diversify our client base. As you know, we used to be very tied to retail credit cards. Now we're growing very quickly in retail banking, title insurance, auto, email account security and background checks which I am very, very excited about. We're also making progress in the logistics and shipping market vertical. The amount of theft and fraud that happens there is shockingly large. I just want to preface our discussion of Q1 with that background because we believe our progress in achieving diverse market adoption lies in the fact that we're different and relevant. We leverage the proprietary barcode on a driver's license, the back of a license versus all of our competition that templates the front of the license. Gartner in their last report said that we are unique in what we do and we're the only ones with what they call privileged access to information to accurately identify a fake or fraudulent ID based on the proprietary nature of these bar codes. So that brings you up to speed about some of our growth opportunities that we believe people don't fully recognize. Before I continue talking about recent deals and achievements, this is the appropriate time to share some more exciting news, the appointment of Tim Poulin to the role of Senior Vice President of Sales. Tim brings extensive experience in sales leadership, staff development and business development through his demonstrated ability to drive revenue and foster long-term client relationships. He has a solid track record of building high-performing teams that consistently exceed targets. Most recently, he contributed to Ping Identity's nearly tenfold growth from $85 million to over $800 million as Senior Director Sales Strategic Accounts. Like the other new members of our senior leadership team, Tim has hit the ground running. Tim has already added three additional sales associates, bringing the total to eight team members under his leadership who are focused on new logos. Tim started his career as a sales engineer and quickly rose to become a top-performing sales professional earning number 1 worldwide sales representative accolades at three different primarily early-stage companies. Transitioning into leadership, he has hired, scaled and coached execution-focused teams that have delivered significant results and forged deep client and team loyalty. Tim's career highlights include being part of three successful IPOs, so he is familiar with rapid growth and we are very excited to have him join the team. Now for some sales updates. A provider of a variety of revolving credit products originated through banks as well as private label and their own branded credit cards went live in Q1. This is an initial smaller release to work out any kinks in their system. They are now satisfied that all is working as planned and we anticipate that they will be rolling out the full release in the second quarter. The client that uses us for password resets on email accounts which started using us in the U.S. and then moved to Europe is now rolling us out to Canada. I will remind you that they looked at us and our competitors. They were seeking proven robust technology because they understood what can happen when a cybercriminal gains control of an email account linked to your banking, investment and credit card accounts. They knew they needed the most accurate solution which I believe is Intellicheck. Also, one of the largest title companies we spoke about on our last call has gone live using our no-integration portal delivery method. They are now using our technology in all three of their divisions and they will be doing a full integration into their systems with our direct API. In addition, they will be adding passports to the documents we authenticate for them. Title Insurance continues to be a strong area of interest for us. We estimate that we are now working with the title insurance companies that handle approximately 40% of all the title insurance volume in the country. This is another important area where we quickly and effectively stop fraud and in this case, on a very high dollar transaction. As we continue to build on our efforts to advance our market penetration in this vertical, I can share with you that we are working with another one of the top title insurance companies on finalizing an agreement. Currently, we have a proof of concept underway with them so that they can have a first-hand experience with our cutting-edge technology. We believe this will ultimately lead to the adoption of our technology on a national scale. Now for an update on our AWS migration. In April, we migrated three large clients, including one of our top three from Azure to AWS, all with great success. This quarter, we have scheduled 11 additional large clients, including another of our top three to move. By the end of the quarter, we expect all of our no-integration portal clients will be moved over as well. The changes to marketing are also having an impact. There are a couple of examples. Since we've made the changes to our marketing team and focus, LinkedIn followers are up 16%. And YouTube video views which have become an important part of selling, are up 141% versus Q4. Website visitors are up 34% and, more importantly, visitors are staying 10% longer versus Q4. I attribute this to better outreach, content and execution. On the IR front, we continue to remain active. In March, we presented and attended the iAccess Virtual conference. There, we had a full day of one-on-one meetings with potential investors. That was followed by the Planet MicroCap conference late last month. I did an interview with the Planet MicroCap podcast host and a featured presentation. Take a look at the Investor Relations page on the Intellicheck website to access the link to the presentation and the investor deck. There, we also had two full days of meetings with interested investors. These forums also provided us with the opportunity to network with other potential business prospects. What we saw at these conferences tells us investor interest is certainly there and it is being strengthened by key data points. We are the market differentiator in digital and physical ID validations. Our product and process are different and more effective than our competitors. Our gross margins are around 90% and are very scalable and the value proposition we offer speaks to the reality. Fraud isn't going away; it is escalating. These developments are outgrowth of the implications of our strategic plan and its emphasis on a diversification strategy. Economic data underscores just how important our move away from a retail-first emphasis has proven. The latest WalletHub economic index released less than a month ago shows consumer confidence is down nearly 8% from the same time last year. This represents the fourth lowest point for consumer sentiment in the past five years. Consumers are putting off retail purchases in the face of economic disruption and uncertainty. As we move forward, we will continue to make adjustments to the implementation of our strategic initiatives where we believe they are needed as market changes and economic conditions evolve. I will now turn the call over to Adam for further discussion of our Q1 results.

Adam Sragovicz, CFO

Thank you, Bryan. We are pleased to give you more information about the numbers of our first quarter of 2025 in more detail. Our first quarter revenues were 5% higher versus the prior year, even in this challenging macro environment. We also saw pricing firmer across the board, up 9% for new business versus the fourth quarter of 2024, which partly reflects pricing power and is partly due to pursuing verticals such as auto and title insurance that typically carry a higher cost per scan. Adjusted EBITDA also improved by $100,000 versus 2024, putting us at roughly breakeven with only a very small $17,000 loss for the quarter. Revenue for the first quarter of 2025 increased 5% to a first quarter record of $4,894,000 compared to $4,680,000 in the same period of 2024. Our SaaS revenue for the first quarter of 2025 grew 6% to $4,868,000 from $4,609,000 during the same period of 2024 and represented over 99% of our first quarter revenue. Gross profit as a percentage of revenues was 89.7% for the quarter which included 210 basis points of amortization expense related to the software development projects previously discussed. This compares to 90.7% that includes 50 basis points of amortization expense in the first quarter of 2024. And now we will be introducing a new metric for evaluating our business performance our adjusted gross margin that excludes the software amortization expenses. Our adjusted gross margin improved to 91.8% in Q1 of 2025 compared to 91.2% in Q1 of 2024. This is the first time in our conversation with you today and in our press release and financials filed just before this call with the SEC, we are reporting this new metric. We believe that this is a useful way to view our business since GAAP gross margin shows a lower number for Q1 of 2025 only because of the noncash amortization of software development costs. When removing this noncash item as many software companies do, we see continued strong margins even as revenue grows. We did capitalize $166,000 this quarter and expect to do roughly the same in the second quarter of 2025. These capitalization costs are related to the customer migration to AWS which as you heard is well underway and we expect to complete around the middle of 2025. And we should not see more capitalization of costs related to this migration after it is complete. Operating expenses, which consist of selling, general and administrative, marketing and research and development expenses, decreased $28,000 or 1% to $4,740,000 for the first quarter of 2025 compared to $4,768,000 for the same period of 2024. You can see the reduction specifically in SG&A of about $500,000 compared to the first quarter of last year, notably due to more efficient marketing spend. On an accounting basis, R&D expenses are $468,000 higher in Q1 of 2025 driven largely by the fact that we have put many of our projects into production and are now capitalizing very few of our ongoing engineering expenses. The weighted average diluted common shares was 19.8 million for the first quarter of 2025 compared to 19.4 million for the same period of 2024. As to the company's liquidity and capital resources, at March 31, 2025, the company had cash and cash equivalents of $5.1 million. As a practice, we don't provide guidance but we do try to read all of the reports written about us and couldn't help but note the consensus for Q1 2025 cash was $3.4 million. This is a full $1.7 million lower than where we ended up. We expect the cash number to be even higher for the second quarter and to end the 2025 year at a level higher than Q1 as well. This reflects discipline on the operating expense side as well as revenue that continues to grow. This is a byproduct of the positive cash flow that we expect to show for the 2025 year. At quarter end, there was working capital which is defined as current assets minus current liabilities of $6.6 million, total assets of $24.5 million and stockholders' equity of $17.6 million. One final liquidity note, the company has a $2 million revolving credit line with Citibank that line may be secured by accounts receivable. There are no amounts outstanding under this facility and the facility was not utilized during 2025. On past earnings calls, we have shared our progress in marketing and customer satisfaction as well as our systems migration and development. Today, you heard about a very important piece of the puzzle coming together on the sales side which should pave the way for even greater growth, especially through the development of channel and partner opportunities. We look forward to sharing our Q2 results with you in August.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. Our first question comes from Mike Grondahl with Northland Securities.

Mike Grondahl, Analyst

How much of the 40% of the title market that you have exposure to is your penetration of that market? And where do you think it goes?

Bryan Lewis, CEO

I see the market as having two main aspects. That 40% refers to market share, and there are many studies available if you look up the top players and their respective shares. Regarding the large client we discussed today, I believe we’re not fully aware of all the business opportunities when we aren't integrated into their systems, which is why they are working on integrating with our API. The other aspect involves smaller players, which are the resellers we collaborate with. I noticed that in Q1 of this year, our title revenue increased by about 350%, almost evenly divided between direct sales to large clients and sales through our resellers who reach smaller clients. This strategy seems to be effective, as we’re gaining a lot of visibility, generating numerous inbound leads, mostly from smaller companies, which we then refer to our partners.

Mike Grondahl, Analyst

Got it. And then outside credit cards, what would you say your next three largest verticals are?

Bryan Lewis, CEO

Banking and Auto and then quite honestly, age restricted. If I just look at the numbers with banking, kind of dwarfing that again, just to talk about numbers and things. The revenue from retail banking is up about 50% versus Q1 of last year.

Mike Grondahl, Analyst

On the retail branch side? Okay.

Bryan Lewis, CEO

On their retail branches and digital, right? Because the bank often begins in the digital space before transitioning to the physical branches. They may do this to mitigate some fraud risks without needing to develop new systems, utilizing our tools and capture delivery methods while figuring out branch integration. Conversely, they might start with the branches. Generally, for every bank we work with, we've expanded into areas like their call centers and help desks. They realize they can implement our solutions widely.

Mike Grondahl, Analyst

Got it. And last one, historically, your exposure to retail has been about 70% roughly.

Bryan Lewis, CEO

Yes. Credit cards.

Mike Grondahl, Analyst

What would you describe that exposure as today? And is that still acting as a small drag? And kind of what was that drag if it was a drag in 1Q? And how do you see it playing out the rest of the year?

Bryan Lewis, CEO

Yes. If I look at the same type of thing, between the companies that went out of business. So our customers, customers that went out of business and then just regular retail malaise, revenue from retail was down 26% from Q1 2024. So as a percentage, it's certainly dropping. Now we've got customers who are adding retailers, right, still. But it's just right now, I think people are kind of maxed out on their cards and other things. So it's not one of our growth drivers at the moment. It's certainly the way that I'd put it. Again, I think should the economy turn around, it becomes a really nice tailwind but I just think it also points to the fact that getting into other markets has been really good for us. And again, I always stress that we focus on the markets where it really hurts if you're not right. And I look at a lot of things in terms of age-restricted products and other stuff like that. People look at us as a revenue limiter versus any other problem because they'll just go buy insurance instead of cutting their sales. So we target where it really hurts if you're not sure that you know who you're dealing with.

Mike Grondahl, Analyst

Great. I want to highlight that achieving 6% year-over-year growth in SaaS is impressive, especially considering the challenge of a 26% decline in retail.

Bryan Lewis, CEO

Yes, I'm glad you pointed that out because it seems many people don't notice. Last year, we didn't see much revenue growth, but we managed to overcome a significant decline in retail revenue. Many retailers have closed down stores or even gone bankrupt. I believe our diversification strategy has really proven effective.

Operator, Operator

Our next question comes from Rudy Kessinger with D.A. Davidson.

Rudy Kessinger, Analyst

I guess following up on retail down 26% year-over-year in Q1. Can you show what percentage of revenue retail was in Q1? Just so maybe we can churn it back into what the rest of the business is growing ex retail because obviously, it's got to be growing pretty nicely.

Bryan Lewis, CEO

Yes. Looking at the data, it's not entirely straightforward, as sometimes the information isn't as clear as I'd prefer. However, I would say that currently, retail and banking are approximately equal in terms of revenue. This highlights how growth is helping to balance things out. Age-restricted revenue is expected to be around 8%, with auto revenue being similar.

Rudy Kessinger, Analyst

Okay, got it. And then I saw your deferred revenue and SaaS RPOs were up $3.5 million quarter-over-quarter, both are the highest they've ever been. Was that from the renewal signed last quarter with that large Mid-Atlantic bank? Or what drove the big increase? Was there any new deals in there that drove that?

Bryan Lewis, CEO

Yes. We have started transitioning a significant number of our customers to a pricing model where they either pay us with an upfront contract, like some of our major banks, who commit for three years and pay either a full year or at least a quarter in advance. This means we are moving away from billing in arrears to a more straightforward payment structure. We offer a small discount for annual payments compared to quarterly payments, which simplifies our billing process significantly.

Rudy Kessinger, Analyst

Okay, got it. And then any update on the large social media customer and their anticipated rollout as well as the large regional bank that I believe last quarter, you said you were in pricing discussions with for a multiyear 7-figure deal with the Q3 expected rollout? Just any update on this.

Bryan Lewis, CEO

We recently had a positive discussion with the social media platform, and they indicated that we are meeting their expectations. However, they asked us to be patient as their processes can be unpredictable, shifting priorities quickly. As for the large regional bank, we have finalized all terms and are currently moving through the procurement process, which can take some time. We are actively working on the new middleware they developed, and they continue to utilize our services and pay for our digital offerings since that's how our relationship began. Everything appears to be on track, and we will announce once the final paperwork is completed.

Operator, Operator

Our next question comes from Scott Buck with H.C. Wainright.

Scott Buck, Analyst

Bryan, you brought up shipping and logistics.

Bryan Lewis, CEO

Yes.

Scott Buck, Analyst

Could you just give us a little color on how you guys are helping out there and maybe how you size that opportunity?

Bryan Lewis, CEO

Yes. I think it's going to be larger than I initially thought, there's actually a conference being held of shipping and logistics people to talk about fraud. The main way that we're used in this space is many truckers are hired remotely. Long-haul truckers, they don't work for, say, the company whose stuff they're moving. And it is organized crime and they show up with a fake license. They back up. They steal that tractor trailer full of everything from coffee to chocolate to electronics and they never see that truck again. So you're talking upwards of $250,000 to $1 million in loss per truck. So it is a big concern. So they want to know a couple of things. One, the person actually does have a CDL. The license is real. This person does exist. So that's where we're playing in space. We started off with one company. The thing I like about this space is they all talk and that's how we're now in two others. Our first customer was a reference without us even asking and called up his buddies at two other companies and said, 'You got to put this in place.'

Scott Buck, Analyst

Great. That's helpful. And then I want to check in and see where you are with resellers. Have you kind of matured that go-to-market strategy? Or is there a lot more room there to improve?

Bryan Lewis, CEO

I think there is plenty of room to improve. One of the people that Tim hired is somebody to come in and sort of, I'd say, light up the resellers after we get them because I think that you need to be making sure the reseller salespeople know about us, how to present us, all those types of things. And there's certainly a lot of other resellers that we're in now, I'd say, deep in particular in banking where there are a lot of small community banks and credit unions who want to use us but don't build their own back end. They outsource that. So getting into that outsourced stack is really important to us. But it's very interesting. It's sort of like every time I kind of look around and I'm doing some research, I'm like, 'Oh, there's another interesting space we should get to through a reseller' because, again, anytime I see a large market made up of small companies, I'd rather get to that through a reseller. And again, I like them because since their volume each is lower, the price per transaction is higher and that makes it much more interesting to us and the reseller.

Scott Buck, Analyst

Yes. No, that makes sense. And then last one, it looks like the accounts receivable balance has been climbing in the last few quarters. Have you made changes to your payment terms? Or is there something else mechanical going on there or just the ebbs and flow of the business?

Bryan Lewis, CEO

No, that's mostly changes to our pricing model and how we're working it. So that now instead of always billing in arrears, we're making people commit to a number of transactions and then they prepay that either quarterly. So they'll commit to an annual number of transactions and they either prepay it annually or quarterly, as opposed to us saying, okay, we'll see what you did every month and then go bill.

Operator, Operator

Our next question comes from Jeff Van Rhee with Craig-Hallum.

Jeff Van Rhee, Analyst

I've got a few. So first, on the metrics front, anything you can share that's a leading indicator here that you might be able to quantify for us, whether it's pipeline value, maybe pending ARR. You've got a lot of lead time on these things. So visibility into the dollar value of ARR that is to go live? I know you're not giving annual revenue guidance but something to broadly frame a trajectory?

Bryan Lewis, CEO

I believe we have a solid understanding of the value of our Annual Recurring Revenue, particularly the committed amounts. Some of this revenue comes from a customer that ranks among our top three or four, who are all substantial clients. This perspective supports Adam's expectations for increasing cash generation each quarter. As for our pipeline, it's important to ensure that we maintain a genuine and reliable pipeline, which is why Tim is here. However, I'm focusing more on the committed or nearly committed customers and contracts, and everything looks promising and strong for us.

Jeff Van Rhee, Analyst

Okay. And congrats on the addition of Tim and curious in the interview process, what was it specifically? It's got obviously a very accomplished history but what stood out to you as most applicable? What gets you excited about hiring him?

Bryan Lewis, CEO

One is, if you remember, I started off in sales and ran sales teams and went in and grew productivity and all that kind of stuff. And in speaking with him, I realized that we were very much of the same mindset and how we manage people, how much rope do we give them before we say there's not going to make it, a couple of things like that. And then I had, honestly, a couple of psychologists who do this for a living for companies, give him some assessments and things and they're like this guy is perfect for your company and the way that you need to grow out your sales team. So between, I would say, the professional like-mindedness and then having that being confirmed by outside sources worked out very well. I've been doing a search for a bit and what I liked about Tim also was he came through from a reference from somebody that I highly respect.

Jeff Van Rhee, Analyst

Nice. I believe you mentioned in the script that Tim has already hired three sales representatives. If I remember correctly, you also said you hired three in the last quarter. I'm particularly interested in these three new hires. I understand the previous three were more junior and had a background in telesales, but they wanted their names on some accounts. I'm curious about the profiles of the three individuals you just brought in.

Bryan Lewis, CEO

We have brought in more experienced individuals who are well-versed in enterprise sales and understand its long-term nature. I believe we are achieving a good balance with a team that includes eager, younger members who are willing to make calls and learn the necessary skills to close enterprise sales, alongside more seasoned professionals who recognize the value of our offerings. They've expressed that our product has great potential, often questioning why more people aren’t purchasing it. I believe individuals with this mindset are exactly who we want on our team.

Jeff Van Rhee, Analyst

Great. I have two final questions about the numbers. First, regarding resellers, can you tell us what percentage of the annual recurring revenue in the pipeline comes from resellers compared to direct sales? And my last numbers question is about the digital aspect. We haven't heard an update on that in some time. You used to provide a breakdown and aimed to increase digital revenue as a percentage of total revenue. Where do we stand on that now?

Bryan Lewis, CEO

I don't have that number right now, but digital is a significantly larger and definitely growing part of our business. If you consider much of what we're doing in title and automotive, it's primarily digital because a lot of transactions are conducted remotely, such as buying cars or closing on houses. Additionally, in retail banking, we're involved with almost every bank except for one, whether that's through their call centers, websites, or mobile apps. Digital has definitely expanded, to the point where I don’t even think about it as it's simply one of the many ways we sell our product. If someone wants digital, we provide that option seamlessly. I will ensure we have that specific number for our next discussion. Regarding resellers, I'm quite satisfied with our position in most markets. I'm currently reviewing some data, and it appears to be almost evenly split. For instance, in automotive, the major players come directly to us, while others are funneled through resellers. The same applies to title services. However, I believe some markets will be almost entirely reliant on resellers, particularly in the background check sector, which excites me. There are certainly a couple of key players we aim to target, but for the rest, the goal is to work through resellers, which is why we brought in a new team member to support these accounts under Tim.

Operator, Operator

Okay. There are no further questions at this time. I would now like to turn the floor back over to Bryan Lewis for closing comments.

Bryan Lewis, CEO

All right. So thanks, everybody, for being on the call. I also want to share another conference opportunity to note with you all. I'm going to be presenting at the Ladenburg Thalman Technology Expo '25 in New York City on Wednesday, May 21. Adam is going to be on hand as well if you want a one-on-one meeting. I think we still have a few openings left. You can go to their website at ladenburg.com. So just then concluding our call today, my message is this: watch this space and the runway for Intellicheck to grow. We believe that our anticipated growth will be driven by our new Senior Vice President of Sales and a newly revitalized team, partnered with real progress in our customer relations program driven by our relatively new VP of Customer Success. I have re-integrated marketing. The numbers, I think, speak for themselves and this new marketing firm that we're working with. We're finally seeing the finish line in sight with our AWS migration. And then, the new partnerships that we've been speaking about reselling and new opportunities. So we have very high expectations for ourselves and what's to come and we look forward to updating you on Intellicheck 2.0 in our next call in August. So, thanks again for joining us today and everyone, have a great evening.

Operator, Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.