Intellicheck, Inc.
Q4 2020 Earnings Call Transcript

Published: 16 Mar 2021

[Operator:]

Greetings, and welcome to the Intellicheck Fourth Quarter and Year-End 2020 Earnings Conference Call. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Gar Jackson. Please, go ahead.

[Gar Jackson:]

Thank you, operator. Good afternoon and thank you for joining us today for the Intellicheck fourth quarter and full year 2020 earnings call. Before we get started, I will take a few minutes to read the forward-looking statement. Certain statements 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.

[Bryan Lewis:]

Thanks, Gar, and welcome everyone to our fourth quarter and fiscal year 2020 earnings call. We continue to show solid growth in total revenue for fiscal year 2020, up 40% over 2019; and SaaS revenue up 54% during the same period. During the fourth quarter, total revenue was up 6% over Q4 2019. But more importantly, SaaS revenue was up 18% over the same period. Sequentially, Q4 SaaS revenue was up 23% versus Q3, 2019. We believe that given COVID and the return to lockdowns and portions of the country throughout the year, those numbers bode well for the future. Let me explain. During 2020, we continued to add clients and retailers and existing clients continue to add additional use cases, all through the lockdowns, partial reopenings, depressed levels of retail traffic and returns to more lockdowns in some markets. Throughout the pandemic, we could immediately see the impact of closings and openings through transaction counts. From June through December, when some places began to partially reopen, albeit with limited traffic and typically occupancy restrictions, we saw an increase in transaction counts of 190%. While this is an impressive sign of recovery from the pandemic, it isn't a complete recovery versus pre-pandemic levels. Same brand transaction volumes for Q4 2020 versus Q4 2019 were down an average of 20%, with many regions of the country were still not completely open or limitations on occupancy resulting in limited traffic.

[Bill White:]

Thank you, Bryan and a good day to our shareholders, guests, and listeners. I'd like to discuss some of the financial information that was contained in our press release for the fourth quarter and fiscal year ending December 31st, 2020. I'll begin with our fourth quarter results. Revenue for the fourth quarter ended December 31, 2020 grew 6% to $3.078 million versus $2.897 million for the same period last year. Our SaaS revenue was approximately $3.012 million for Q4 of 2020, an 18% increase from $2.557 million in Q4 of 2019 and grew 23% sequentially over the third quarter of 2020. Gross profit as a percentage of revenue was 92.6% for the quarter ended December 31, 2020 compared to 88.8% for the quarter ended December 31, 2019. Operating expenses that consist of selling, general and administrative, and research and development expenses decreased by 4% or $110,000 to $2.389 million for the quarter versus $2.5 million for the same quarter in 2019. The decrease is primarily due to reduced legal fees and sales-related expenses. The company posted net income of $1.260 million for the three months ended December 31st, 2020 compared to a net income of $106,000 for the quarter ended December 31st, 2019. The net income per diluted share was $0.07 versus net income per diluted share of $0.01 in the prior period. It's important to note that approximately $796,000 or $0.04 per diluted share of our net income was related to the forgiveness of the PPP loan we received during the year. Adjusted EBITDA for the quarter ended December 31st, 2020 was $635,000 compared to EBITDA of $216,000 in the quarter ended December 31st, 2019. Interest and other income were approximately $800,000 for the quarter ended December 31 2020 as compared to $35000 for the same period in 2019. The increase is due to the forgiveness of our PPP loan of approximately $800,000. Turning now to our full 2020 year results, revenue for the full year ended December 31 2020 was up 40% to $10.7 million compared to $7.7 million for the prior year. Our SaaS revenue for the calendar year 2020 was $9.3 million an increase of 54% as compared to $6.1 million in the prior year. Driven by the growth in our SaaS business gross profit as a percentage of revenue remained strong at 86.7% for the year ended December 31 2020 compared to 87% during the same period last year. Operating expenses for the year were $9.6 million compared to $9.3 million for the year ended December 31, 2019.

[Operator:]

Our first question today is coming from Mike Grondahl from Northland Securities. Your line is now live.

[Mike Grondahl:]

Yes, thanks guys and hopeful as well. Any initial comments on January and February just kind of how that's trended in the New Year? And then secondly I think you mentioned on the e-commerce side maybe two clients or customers using the facial biometrics. Are they paying a premium for that, or can you kind of help us understand that offering a little bit more?

[Bryan Lewis:]

Yes. So I guess working backwards so I can remember it Mike. So yes there is a premium that's paid for the facial biometrics. So it's an upsell to them. I will say that, a lot of people are interested in the facial biometrics but it depends on the use case, it depending upon how much friction they want to introduce into it. It tends to be more for things like a banking account opening or applying for sort of a substantial loan. Those are the types of things that people are using it more for than just an authentication. So it's one of the things that I think people want to see that you have but I don't see it being used very much other than for maybe applications where the authentication isn't as accurate or certain as ours. They use it as a need almost to weed out bad guys who might not want to get their picture taken. In terms of volumes, we've definitely been seeing an increase over time. I wish the world was more open than it is and the vaccine was more out there. So I'm disappointed that we're not as open as we have – I'd love us to be but I am also very excited about the fact that we continue to add clients. So we're seeing growth even with places that are still partially locked down or have occupancy restrictions.

[Mike Grondahl:]

Got it. And then maybe just as a follow-up. I think I caught the 32 integrations in 2020. And then I think that 10 new pilots in 4Q were incremental to that 32. Anything you can give us on sort of new customers or new use cases and that momentum?

[Bryan Lewis:]

Yes. So – yes. So it wasn't 10 new pilots in the period it was 10 new people coming on. Two of them are pilots. Most of our clients don't pilot much anymore because it's easy for us to give them tools to see how well it works. So for the most part, those were the large integrations that required our tech team to talk to their tech team to connect. That doesn't include some of the things that we do that do not require any integration. So if somebody is using us on a mobile device or other those things, I don't count those as a large integration. One because they're not usually as large in terms of revenue but it also – it doesn't take a lot to get those things going. That's more like law enforcement, smaller jewelry stores, bars, cannabis places things like that.

[Mike Grondahl:]

Got it. Okay. Thank you, guys.

[Bryan Lewis:]

Thanks, Mike.

[Operator:]

Thanks. Our next question today is coming from Kara Anderson from B. Riley & Company. Your line is now live.

[Kara Anderson:]

Hey, guys. Thanks for taking my question.

[Bryan Lewis:]

Thanks, Kara.

[Kara Anderson:]

Just wondering if you can expand on where you stand with the sales investments a little bit more in terms of how many people you've hired so far, what their expected ramp is and then the expectation for the number of hires for the balance of the year?

[Bryan Lewis:]

So far we've hired one. I'm probably going to be adding like three salespeople in total, one account management person to add to what we have on the team. Obviously, that will be rolled out. Part of it is I don't want to bring in so fast – people so fast I can't train them. But what we are seeing is that we're able to get people from the space, who I think we'll ramp very quickly, people who are used to dealing with the efficacy of the other systems that are out there and they come in and we let them play with what we have and they see how accurate they are – we are – I'm sorry. And they tend to be very excited to come on board. So I think the fact that we're going to hire people who understand the identity authentication space will help with that ramp period.

[Kara Anderson:]

And then I think last quarter you guys put an expected investment kind of growth rate, which is inclusive of these hires. Correct me if it's wrong, if it was 10% to 15% for 2021 and whether or not that still holds true?

[Bryan Lewis:]

I think that as I looked at the market potential we had out there and what I feel we're leaving on the table by not having the more salespeople and more brand market awareness, I think that I'm looking to increase that spread out over the year. I think we've been very smart in terms of we don't just go spend money willy nilly. But I do think given the amount of clients that we have, who are saying things like that VP of Fraud that I quoted, who will act as references for us I think it's really time for us to kind of match some of the sales force sizes of our competitors. Because we do have in my opinion a much better way, much more certain way of authenticating a person becoming much more important in a person-not-present environment as many things do go online. And we are much simpler to put in place and to use much easier for somebody to scan the back of a license than take a photo. Because what I'd say, anybody on the call try and take a photo of your license without glare on it. That glare is going to get in the way of authenticating anybody who's trying to authenticate through templating. We don't have those issues and that provides certainty. I think it's going to help us really grow, but I need the people to get that message out there.

[Kara Anderson:]

Got it. And then just one more for me. Just thinking about the first quarter, you did comment about volumes there. But should we expect that you can grow through the seasonality of 4Q given the dynamic in some states like California, which request in reopening in December? Just the general holiday shift that we saw that moved online this year versus in store.

[Bryan Lewis:]

Well, we did grow. I mean, that's the thing that gives me a lot of optimism about the future. There were a lot of places that went to some pretty regressive lockdown, shutdowns whatever you want to call them during that period as they saw COVID cases rise, yet we still grew. And at the same time, we still signed new clients who were I'd say barely active in Q4. And the fact that as I said same-store scans when I look at clients that were fully up in 2019 versus 2020, the fact that their scans were still off even with the partial openings 20%, if that goes back to normal that I think bodes well for us. And I would assume that also anybody that newly signed on they probably have depressed floor traffic as well. So I'm looking for the -- hopefully retail comes back as everybody gets vaccinated and feels comfortable going out. But at the same time we're, obviously, focusing on making sure that all of our clients understand how to use our digital channel products to authenticate when the person isn't there.

[Kara Anderson:]

Sorry. Thank you for that. Just one more for me that I thought of, and I'm sorry if I missed this. But did you talk about the pipeline how it looks today for 2021 versus say a year ago?

[Bryan Lewis:]

Are you talking about what we have in terms of integration queue and those types of things?

[Kara Anderson:]

Yes.

[Bryan Lewis:]

Yeah. It's the same. We -- it seems pretty much as soon as Bill and his team move somebody off, we've got somebody else coming in. So that pipeline has stayed consistent. My only goal now is to make sure is we're bringing in new salespeople. I really tax Bill's implementations team capabilities by bringing in more people faster.

[Kara Anderson:]

Thank you.

[Bryan Lewis:]

Thank you.

[Operator:]

Your next question today is coming from Scott Buck from H.C. Wainwright. Your line is now live.

[Scott Buck:]

Hey, good afternoon, guys. Just a couple for me. First, looking at 2021 and 2022, is it safe to assume that a lot of the new clients coming on are no longer the legacy brick-and-mortar retailers, but it's a lot more of the banks, the credit unions, the specialty lenders and maybe some of the call centers? And if that's the case have you, kind of, exhausted the retail side?

[Bryan Lewis:]

I'd say it's a combination of all of the above. And then I would also say in no way shape or form we exhausted the retail side. Our clients -- our bank partners if you will, the ones who issued the white label credit cards still have plenty to go. And that's where a lot of our pipeline comes from, a lot of it comes from them and then a lot of it comes from the sales and the new accounts coming in from our sales force. But it is a combination of new markets like the company that's checking, are you who you say you are when you want to remotely get that lease to traditional stores where you are walking in and applying for stuff and then new financial services firms that need to open accounts? And then thankfully we still have a lot of business that's coming from our existing large bank clients who are finding new areas within their organization to use us. So it's -- I like the fact that while we still have plenty of runway with the existing retail credit card space, we're broadening who we're selling to and how we're selling to make sure that we're across a much broader spectrum of clients.

[Scott Buck:]

Great. That's helpful Bryan. I'm curious as you add some of these new markets, should we expect a smoothing of the seasonality?

[Bryan Lewis:]

I guess. I don't have enough data to say some of these markets are seasonal enough or how they are. But -- and I guess if we're going into things that are not related to holiday shopping seasons more and more I would say yes. How quickly that happens I'm not sure.

[Scott Buck:]

Right, okay. And then last one. I think this is the third quarter in a row where gross margins have run meaningfully higher than the 85% target. Should we start to look at maybe bumping that up for 2021 and 2022, or are you guys still directing people towards 85%?

[Bill White:]

Yeah, I think I still -- we were…

[Bryan Lewis:]

Yeah, it’s comfortable with that. I don't know Bill if you want to comment on that?

[Bill White:]

Yes. We didn't have really much in the way of hardware orders Scott. So from a mixed product perspective, I still think 85% is a good number. It's a conservative number, but I think it's a good number to go with.

[Scott Buck:]

Great. I appreciate the time.

[Bryan Lewis:]

Thanks Scott.

[Operator:]

Thank you. We reached end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

[Bryan Lewis:]

Well, I just want to thank everybody for tuning into the call. I want to thank my team for doing an excellent job during what has been a very trying year for all of us and I truly do look forward to 2021. I was able to get my vaccine and I feel good and I'm happy about that. And I hope you all stay happy and healthy and good. And I look forward to when we can all travel again and so many of the people that are on this call that I haven't seen in almost a year I look forward to seeing again. So thank you all very much.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.