Intellicheck, Inc. (IDN) Earnings Call Transcript & Summary

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Spring Investment Conference 2025. The next presenting company is Intellicheck Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Bryan Lewis, CEO of Intellicheck. Bryan, the floor is yours.

Thank you, and thank you, folks, for sitting in on our presentation. Just a reminder that the deck that I'm going to be running through today can be found under the Investors section of our website. And as kind of required by law, let me just also point you to the forward-looking statements, safe harbor stuff as part of this presentation. So a couple of things, right? Part of what we feel like and why I really like working at Intellicheck is we think we are the only identity validation company out there that uses DMV-issued IDs to create a trusted environment because of what we do and how we do it, which we'll be talking about throughout this presentation. So a couple of things just to know a little bit about Intellicheck, if you don't know much about us. We authenticate close to 100 million people in North America annually. We are a hardware-free company. I think that's one of the things that's really an important differentiator between ourselves and everybody else in this space who requires a photo of the document to be able to authenticate it. All we need is the barcode, which means we can work in any retail environment because the same device that's used to ring up merchandise can read the barcode. The device in a bank that can read the check, can read the barcode. No expensive hardware to take photos of things. And when I say expensive, we're talking $600 to $800. Think about a retailer who wants to be able to issue credit cards or do account lookups at any location for credit, now having to spend $800 per checkout to do that. They're not going to do it and the bank that provides the credit cards isn't going to do it either. The other thing, I think, to talk about how effective we are at what we do. We've got 28 state level as well as lots of local and university law enforcement agencies that use us to authenticate driver's license and DMV-issued IDs. And I think that's really telling because they're the only ones who can actually call into every DMV and see if the license is real. And they're trained to be able to spot fate. And they can't. That's why they use us. So if train law enforcement can't, you have to figure that everybody in the retail or banking world isn't going to be able to either. I always tell people, I lived in New Jersey for most of my life, and I worked in New York for most of my life, and I couldn't tell you what a New York license looked like. How is anybody else? Important to note, we also work in the digital world. Your phone turns into the device that we need to use to analyze the document. And I'd say that we're positioned well for success. One of the things that we get asked about all the time is what is our renewal rate. And I'd say it's a positive renewal rate because our clients at renewal generally increase their spend with us. And to talk about how much people renew, every single renewal that we had, and I'm going to caveat that there's some bars and restaurants that are clients that go out of business. But every other client we had in Q1 that was up for renewal did renew and between renewals, upsells and other things, those renewals in Q1 had an ACV exceeding $10 million. We consistently run at greater than 90% gross margins. I think we're very attractive, in my opinion, at 2x revenue. I wish we weren't blacked out. We've got just over $28 million in historical NOLs, and we expect positive EBITDA for 2025. So for those that aren't familiar with identity theft and why what we do continues to be in such demand. If we look at just fraud, right, and I'm not talking about things now, other areas where we're growing like e-mail account takeover, social media, other things, but just straight fraud theft, right? $23 billion in 2023. The numbers aren't completely out yet for 2024. 1 billion victims of data breaches worldwide. I, in '24 was in 5 breaches myself, right? One of the fastest-growing areas is account takeover, where they come in and say, take over your whole account at your bank and steal it, $13 billion in 2023. That's a 15% increase in fraud. And then where does it happen? 35% of the time, there's identity misuse when people are opening accounts. And one of our areas that we're growing very quickly in the automotive space, 79% of auto dealerships have said that they've had an identity fraud loss within the last year. And if you think about how much that car costs, even the dealership before they mark it up, which isn't all that much, that's a lot of money that they're losing, and that's what we stop. So the other thing is stealing an identity is cheap and easy. If you look at it, there were about 300 million people that were in that UnitedHealthcare hack alone. That got your name, address, social security number, e-mail, phone number and in most cases, a photo of the front and back of your driver's license. That means it's super simple now to become you, right? And as you can see, the border patrol stops 40 shipments of fake IDs, right, in the month of August alone. That's probably the most expensive part of stealing your identity. It only costs about $20 to buy all that information about you on the dark web. The driver's license, the fake that even law enforcement can't tell apart is going to cost you about $40. So for $60, they can become you and go shopping. right? Now what I'll say is that with the right technology, stopping identity theft is very simple, right? Now the way that we do it is that there is a barcode on the back of a driver's license. Now what the bad guys do is [ camera ], which is the organization that all North American DMDs belong to, prints a standard. As long as you print the barcode on the back of the fake to that standard, it will scan and it will look real. Thing is no state province or U.S. territory uses that standard. They all have their own hidden unique security features, everything from digital signatures to sub-directories, you need to unlock all those types of things that can't really be discovered, even with AI. So what I'd say our competition does, which is take a photo of the license compare it to a template, does this look like how an Ohio license should look and make a guess on how real is it and then parse the data out of the back of the barcode and match it to the front, that doesn't work because it will parse, it looks real and you can't tell it apart. So you can go look on the website to find out about the management team. The one thing I will say is that almost everybody on this team has experience in high-growth SaaS businesses. So why do people use us? I'm not going to run through everything except for the fact that one of our largest banks, their head of fraud called us one of the top 5 fraud stoppers of all time, a true game changer. And what I will say is that the New York State, DMV before they put us in production tested us against 1,000 fake IDs and we caught every single one. So I think that shows why law enforcement uses us and why anybody who loses a lot of money and any time that a fake gets through, like banking, like credit cards, like automotive, like title insurance, they use us because they can be assured that they are not going to get hit with that loss. All right. And where are we used, one of the questions that I get asked a lot. So across just about every vertical that we're in, there's new account creation, whether that is in the physical or the digital world. Automotive is a good example, a lot of laws about what needs to be done with your license if you're coming in looking at a car. They can now do that whether you're standing right in front of them or 1,000 miles away. We're used in instant credit, buy now, pay later, lease-to-own, title insurance, e-mail account recovery, social media account recovery, property management, background checks, you name it. If somebody needs to know it's you, they use us. In retail, certainly card-not-present. I don't know about you all, but I like my points, I just don't like carrying around credit cards. So if I want to get the points, I just say, I forgot my credit card. They say, no problem, show me your license. We scan the license. We prove that it's real or it's fake or it's real but expired, send that information off to the bank. They say, yes, Brian has a credit card, issue the credit. I get my points, the retailer gets their sale and everybody is happy. In the banks, we're used in the branches, in their call centers and online. And as I said, in the corporate world, we use for employee onboarding internal account resets. That's where a lot of the breaches have been coming from lately. People call in and pretend to be an employee, get a password reset and now they're in the system. Our customers have been using us to verify that it really is Bryan when he calls into the support desk to get a password reset. So how do we do it, right? So what we do, we do in less than a second. So we're going to scan the ID and using our 100% proprietary barcode verification, we're going to make sure that the barcode is real and matches, there's currently about 250 valid formats in circulation today. So we're going to know that it matches that jurisdiction's format for that date of issuance. If it's -- we can also tell if the document has been particularly in the digital world, if it's been altered in any way, if it's an image of a document or if it's an image taken off the screen. We have nearly 100% decisioning. I think we're currently running about 99.975% of the time that we're presented with the document, we can render a decision on whether it's good or bad. Those that are doing templating, our competitors can't say the same thing. It runs a much lower rate. And oftentimes, it requires that the picture of the document be sent off to a human being for them to look at it and make a decision. Now that does not work in most environments. It does not work in the retail environment because they don't want their lines backing up. Again, no hardware required in almost every situation we're in, whatever they are using to -- that business is using to run their business, we can integrate with something that can read a barcode. And again, in the digital world, people's phone becomes the device that's used to gather all the information we need to do -- to render that decision. All right. We then analyze all that data, right? So everything from [indiscernible] certified facial biometrics to phone carrier lookup, to is this coming through a known website or known carrier of fraud, we're going to tell our customers that. They can use that information to decide whether or not they can and want to do business with whoever is on the other end of that transaction, right? And then we provide the results back to the customer. So we verify the ID is real. If they want, our customers decide the level of friction. Do they really want to go all the way to facial recognition. Most don't because they're so happy with the barcode. They don't want to risk adding more to the transactional friction and potentially lose that customer. So we're going to let them know that it's real, if they want that, not only is it real, but the owner is holding it. And then are there other risk factors that might make them say, we maybe should think about this transaction further. And again, that happens in seconds, all goes into databases, which our customers can query in real time and can be stored for as long as they want. We also have many ways that our customers can access us because not everybody wants to be or can is able to do integrations. So for example, there's 3 different ways people can use us without having to do anywhere. There's a mobile app that they can download. There is a website that they can log into and send the text to somebody's phone, whether they're in front of them or, again, thousands of miles away. This is one of the largest ways that auto dealerships use us. We've got a product that all they need to do is get a simple dip scanner, attach it to their computer, and they can be running transactions immediately. And then we've got 2 ways that if they want to integrate with us, they can put us as part of their system. Direct is an API that allows them to write their own front end and is also what is used mostly in banks and retail locations where they're just using their existing equipment. And we have a product called Capture for delivery that 2 simple web hooks, they're up and running in a white-labeled experience. The one thing that I should point out, given that we're in about 30,000 retail locations and I think 8,000 or 9,000 bank locations, probably likely that some of you on this call have gone through our system and never would know it. We're always white label. People don't know that it's us. So what makes us different? What I'd say is that it really has to do with our long-standing relationship with AAMVA and the DMVs. Basically, when the DMVs went to barcodes many years ago, Intellicheck was the one who helped them do it, and we help the DMVs still to this day. If you Google the DL/ID card verification program, you'd be brought to the AAMVA website, which talks about how we work with states when they're changing their barcode format to make sure that they printed it properly and that it still meets the AAMVA standard. That's what gives us this proprietary information that allows us to be so accurate in finding fakes. So one of the things that I think, again, is important to point out, I have a stack about 3 inches high of fake IDs on my desk that we've gotten from our customers and law enforcement. And again, every single one of those documents will scan, right? That data will come out, that data will parse, but it does not mean the document is real, right? What we know, again, are all the hidden security features in that particular document. There are some very sophisticated rules about how the information needs to be put in the document. There are some very sophisticated rules, things like when you're parsing the data out, different fields need to add up and say, match a number somewhere else in the document. There's all these sort of puzzle pieces in there that really cannot be discovered even with AI because there is no sense to what's going on, very hard to figure out the correlation. And I'd say, given that law enforcement tells us we're greater than 99% accurate when they're using us, it proves that it cannot be broken. Now on the other hand, templating is very easy to figure out how to break. It does not take much for AI to figure out where everything should be on a document. You do not need that many to figure it out. And even you can go on the dark web as we do when we're monitoring things, and there are people showing you how to use AI to template a document. They can't figure out how to template the barcode to match all the hidden security features. So that's why we're able to verify the licenses with such accuracy. And I think a couple of things about 2024, I get some of these slides. They're just a little bit redundant in my opinion. So to give you the magnitude also then of who we deal with, we work with some of the largest banks, the largest title companies, largest automotive dealers, very big players in the technology for background checks are now coming live on the system. So even though we're a little company that many people haven't heard of, some of the largest banks in the world rely on us to be the first step in their business process. And again, in 2024, one of the things that we wanted to do was to make sure that we're expanding into other markets other than just credit cards and retail, which can be very tied to the economy and have a lot of seasonality to them. So a couple of things that we looked at and where would we go. We look -- we signed up Qualia, which is a real estate transaction platform used by many title companies out there. We signed Doma Title Insurance. They're the eighth largest title insurance company. We signed Asio-Data, which is the largest provider or one of the largest providers of software to background check companies. So it will be completely integrated into their process. We have one of the most widely recognized bands in banking. They're a top 10 issuer of Visa and Master credit cards. They just renewed and increased their spend with us 15%. And so far, what they thought they would be, they buy a bucket from us of transactions they'll use. They thought that was going to last them 2025, and they're already back because they understand that it will not. We did just recently sign the U.S.'s largest title insurance company. We've got one of the largest lease-to-own companies with over 1,700 locations. And we went into the university space. The amount of fraud in the student loan space is phenomenal. If I remember reading right, it was about $8 billion or $9 billion in [indiscernible] grants in California alone. This university was getting -- taking on lots of losses from it. They put us in place that has now stopped their losses. So some 2024 financial highlights. So Q4 2024, we had record total and SaaS revenue of $5.93 million and $5.91 million. Our gross margin for the quarter was 90%. Generally, we're between 90% and 92% on gross margins. We've got cash on hand of $4.7 million and 0 debt. And for the quarter, we had net income of $488,000 and adjusted EBITDA of $860,000. And I have Adam on the call in case somebody later wants to understand the EBITDA walk. That's Adam's Forte, not mine. Just a couple of other things before we open it up to questions. This is certainly how I feel what we do. Fraud starts with identity theft. Hit me and hit my wife just recently. People tried to steal her identity 3 places, 3 times. I say it ends with us, and that is one of the things I like about my job. I enjoy looking at the reports every day where I can see the number of people that we have stopped from becoming victims of crime. And I think that makes all of us at Intellicheck feel pretty good about what we do. And with that, we'll start answering the questions. Gar, do you want to...

Sure. We have time for a couple of questions. And the first one is regarding the channel partner program. Bryan, could you talk a bit about your partnership program, how it's working so far? How many resellers do you have at the moment? And what are your ambitions for the program going forward?

I'd say it's going really well. The partners that we've been integrated with are all growing. I'd like to make it work even better. I can tell you that our goals are we want to find sort of 2 channel partners for every vertical. Some verticals would say that there would be more like banking because there are 4 or 5 companies that do a lot in banking. But we want to get embedded with them. I think to make it work even better than it is today, I want to bring on board somebody who's experienced in managing channel partners because the goal there is to make sure that their people understand our differentiators and how to sell it. Being a salesperson for most of my career, I know that you take the path of least resistance, you sell what's easy and something new isn't always easy. So if we don't make it easy for them, they are -- they won't sell it. So I want to help them. That's the goal for the year.

All right. Our next question, how does Intellicheck plan to accelerate SaaS growth in 2025, particularly outside the retail vertical?

Two ways. I think it dovetails into the first question. Our channel partners, we're bringing on some channel partners in banking, which I think will help us get into small and midsized banks. Many of them don't have their own software for us to integrate with. They outsource that. We have quite a few, I'd say, fairly decently sized credit unions that want to use us, but can't until we get integrated. Those discussions are going well because we've got -- again, these banks going to the integrator saying, we need Intellicheck. So I would expect to see growth in that area. We've got a bank that has given us their rollout, which will start in Q3. Again, pure banking, which is not so retail cyclical. They want to roll out to be fully integrated and fully implemented in Q1 of next year, at which point, given the volumes and the multiyear contract that we have nearly complete would make them one of our top 3 customers. And then I just think sales execution only improving on that will accelerate growth. So between our partners who are already in place, our partners we're putting in place, and the banks and other customers that we are in various stages of implementation and release that should help accelerate the growth.

Our next question, how has the move to AWS impacted cost savings? And how might further vendor competition affect margins?

So I'm going to say two things. It hasn't yet impacted savings because we're running on both Azure and AWS until we fully migrate people over. Now I will say that the cost per transaction, if you will, on AWS is much cheaper than it is on Azure. I'm also going to say that we are also putting money into some of the machines that you need to be running AI because we are looking at what data products can we make that enhance our customers' decisions on fraud. I see what -- one customer see -- I may change that. Customers only see what they see. I see what they all see. So how can we work together to fight fraud. Those are the discussions that we're having. And I think the banks particularly are getting more comfortable with it, whereas before they were afraid of data sharing, data storage for too long for breach purposes. They now are coming back to us and saying, we really need to get this going, how do we make it work? As far as further vendor competition, once we move off of Azure completely and get everybody on to AWS, we are 100% vendor agnostic or cloud provider agnostic. We can go anywhere. And I can tell you, the competition is getting fierce to the point that if you have a commitment to one cloud, the other clouds are willing to buy it out. So I think that, that should continually help to increase margins.

And I think we have time for one more question, and that's how does Intellicheck's fraud prevention technology continue to evolve to meet consistent fraud trends across industries?

That I'd say is one of the reasons that we really are looking -- are investing in AI and machine learning. And it's -- and how do we do all these things in real time. And I think a good example of even where that works, there was one particular state that had DMV that screwed up the program on their machine and was printing the date wrong in the barcode. We were able to alert the state so within 2 days, they could fix their error. And now we know that licenses issued over that 2-day period don't follow the normal standard. So we're not going to say that they're fake, but we know what's going on. So I'd say machine learning and AI and how do we look at these large data sets to figure what can we do in conjunction with our customers to improve the fraud fighting is going to be what we're -- where we are investing time, effort, money and brain.

All right. That concludes our Q&A session.

Yes. Thank you, everybody, for attending.

Thank you very much. That does conclude Intellicheck's presentation. You may now disconnect.