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

Greetings, and welcome to the Intellicheck Second Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Keaton Olsen, Investor Relations Manager. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today for Intellicheck's Second Quarter 2026 Earnings Call. Before we get started, I'll take a moment to read our forward-looking statement. Certain statements on 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 call, words such as will, believe, expect, anticipate, encourage and similar expressions as they relate to the company or its management identify forward-looking statements. This includes statements regarding the customer transition we will discuss today, the pace, extent and duration of the resulting volume reductions, whether any volumes are retained or restored and the economics of any retained or restored business, our expectations regarding future revenue, profitability and adjusted EBITDA and our ability to recover or replace affected revenue. These 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 update or alter its forward-looking statements, whether resulting from new information, subsequent events or otherwise. Additional information concerning forward-looking statements is contained in the company's filings with the SEC. Throughout this call, we may reference certain financial metrics that have been rounded for ease of discussion. Statements made today are as of August 13, 2026. Management will use the financial terms adjusted EBITDA and adjusted gross margin. Please refer to our 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 President and Chief Executive Officer, and he will be followed by Adam Sragovicz, Chief Financial Officer. Following their prepared remarks, we will take questions. I'll now turn it over to Bryan.

Thanks, Keaton, and good afternoon, everyone. I will say this for the first time we are doing this call live. I don't know how many people know that you can actually prerecord these things and make yourself sound pretty smart because you don't mess up. So if I stumble, I hope you all will understand why I like just talking. So a couple of things. Our diversification strategy, now in its second plus year of execution, continues to produce results in the second quarter. It's the operating discipline behind that strategy that has generated 4 consecutive quarters of profitability. Revenue for the second quarter was up 7% versus last year and up 16% year-over-year. Gross margin came in at 91% and adjusted EBITDA was positive for the fifth consecutive quarter. These results were generated despite the same macro challenges we described last quarter, persisting through the second quarter and continuing to weigh on our retail automotive and title insurance verticals. So let me start with the hard things, and then I can move on to the great things. As you all know from our historical filings, we often talk about customer concentration, a question I get all the time. A customer that represents about 29% of our revenue in the first half of the year recently informed us that as part of a broader vendor review, looking across all vendors, departments and use cases, not just IDV, so they can evaluate redundancy, ensure there is no single point of failure internally. And as a result, they're currently evaluating a multi-vendor IDV's approach that is expected to negatively affect our transaction levels with this customer. I want to emphasize the word evaluation, that is their word, not mine. As of today, I can say that the traffic shift is nowhere near the extent they said it would be. And additionally, to use the client's own words, this is being driven by not being single threaded to any one vendor. And this is their words, this is what they told me, not driven by a flaw in our system and not a sentence on how we perform. I can also say they recently signed another purchase order. They have also indicated an intention to transition to our newest API, which will give them access to many more of our risk signals to detect fraud. We believe this reflects recognition of the broader capabilities we can provide and the opportunity to further expand our support of their needs in the longer term. Again, we believe if you add all the things we do in the digital world to what I believe is the gold standard in document verification, great things happen. So I want to be direct, and I remember my very first earnings call as a CEO when I was direct and reset expectations. I got a lot of angry calls. But one of my favorite quotes from the Bible is, the truth shall set you free. The truth is this is an evaluation in their words, an evaluation. A new purchase order has been signed. Volumes have not been down to the level they indicated. Sometimes corporate strategies call for an evaluation. I look forward to this evaluation. I want to frame this correctly. This reflects a change in the customer strategy, not a verdict on the accuracy of our results. Intellicheck remains the gold standard in identity verification, subsecond 99% barcode level decisioning that no competitor can replicate because of our exclusive long-standing DMV relationships. Some customers may choose evaluation or adopt other products based on their own goals. That's a prerogative. It does not change the accuracy gap between our platform and any alternative. So let's move on to what I would call great. Q2 revenues grew by 7% sequentially, and we expect that underlying growth to continue, thanks to the consistent and deliberate customer diversification we've built and our strengthened balance sheet with $11.8 million in cash and no debt. Let me now walk through progress that we're seeing across each one of our verticals. The banking and lending vertical remains one of our core focus areas, particularly with medium and smaller organizations. They are far easier to integrate and get running than large organizations. I'm very happy with the delivery mechanism of our platform that we call Desktop. It is a no integration required method. We've signed 3 new clients and are in discussion with several others. It is our belief that this will add significant growth at a faster pace than landing the whales. I will also point out that we continue to whale hunt. I also believe there was some confusion about hardware during the Q&A on our last call. If our clients choose to upgrade their scanners, they may have a sourcing problem, not us. I will say we have helped our clients find sources for scanners and have sped up the acquisition for them. So retail remained about 26% of Q2 revenue. This quarter, retail revenues were down approximately 2% compared to the same period last year. Any improvement here is consumer sentiment as it stabilizes will be an incremental upside for us. In the title market, our direct client relationships still represent an estimated 43% of the market. Mortgage loan origination in Q2 were up 14% year-over-year, and we benefited from this trend. When interest rates will, and I hope we all agree, eventually fall, this market should become, in our belief, a significant tailwind. Momentum has continued across our emerging and adjacent verticals as well in cargo and freight. Our nationwide rollout with our food manufacturer client already in the low 6-figure annual contract value is expected to grow. The roughly $300,000 average loss per truck stolen proves this is a good market for us. I'm also excited that this client continues to introduce us to other manufacturing and shipping companies. In manufacturing, we continue to see major clients who use us to keep their assembly lines rolling. Our age -- in stadium and venue concessions, we see somewhat increased revenue over the same period last year. Most of that, again, is in college and university stadiums. Our age verification verticals and our background check verticals saw some volatility on their smaller basis of revenue. In automotive, scanning volumes at our dealer clients and via our channel partners have been trending lower, but we anticipate that trend reversing. Car sales figures for the quarter overall were roughly flat nationwide. One consistent question I get a lot relates to the social media vertical and the activity of a large global customer within that vertical. And again, in the interest of full disclosure, I will tell you they are back. They have fixed their image capture issues, and we can process from the data we are seeing over 99% of the data they are sending us. They are actively engaged, and I will be meeting with them in person in the coming weeks. What this means in terms of volumes, I cannot forecast. But the recent discussions, even the ones I was having over this weekend have me excited. I will reiterate that we have no revenue from them in our current forecast. As I learn more, and I hope you will all understand my honesty, I will keep you informed. Before I hand the call over to Adam, I want to emphasize that rising fraud activity makes our differentiation more valuable, not less. Synthetic identity fraud overall is up 300% and deepfake-driven fraud is up over 1,000% according to multiple studies, and it shows no sign of slowing down. Fraud prevention is not optional spending for any industry, which is why I like where the company sits. We are seeing new markets come to us as fraudsters increasingly target new channels, creating additional opportunities for us to address. What many companies rely on, a visual review of a license or a template check, which is what our competitors offer, does not adequately address these sophisticated fakes. That is where our technology stands apart. We want to assure our employees, customers, shareholders and all stakeholders that Intellicheck is dedicated to exceeding expectations and expanding our leadership position in the rapidly evolving industry of fraud prevention. With that, I'm going to hand it over to Adam to walk you through the quarter and financial details.

Thanks, Bryan. The vendor resiliency initiative at our customer that Bryan mentioned commenced in late June and early July and did not materially affect our results for the 3 or 6 months ended June 30. Revenue for the second quarter was $5.9 million and SaaS revenue comprised substantially all of total revenue. Operating expenses were $4.9 million, down 1% from a year ago. We earned $573,000 from operations and $633,000 of net income. Adjusted EBITDA was $1.1 million, our fifth consecutive positive quarter. For the 6-month period, revenue was $11.5 million, net income was $1.3 million and adjusted EBITDA was $2 million. Cash from operations for the first half was $2.2 million. Accounts receivable was $2.7 million, down from $3.4 million at year-end 2025. Deferred revenue was $1.2 million. We will be disciplined on costs while continuing to invest in engineering to enhance our offerings and maintain industry-leading accuracy. We will also invest in go-to-market initiatives to increase market share, expand within existing customers, win new customers and grow through channel partnerships. We ended the quarter with a strong balance sheet with $11.8 million in cash and no debt, no plans to raise capital in the near term. We expect cash generated from operations to decline slightly in 2025, and we expect to use some cash in operations in future periods. Some of that is timing rather than performance. A portion of our customers' fees have historically been invoiced ahead of usage, so the cash conversion declines faster than the reported results as we recognize that balance. We expect that we'll generate positive EBITDA in the second half of this year. We also expect to be profitable for the 2026 fiscal year on a GAAP basis. Assuming the customer that Bryan referenced completes its plan as communicated and as we noted in the 10-Q, we have not seen that level of volume reduction. We would expect total revenue for 2026 to be slightly lower than 2025. With that, I'll hand the call back to Bryan.

So before we go to questions, let me leave you with this. Our pipeline in Desktop in our channel partners across multiple industries and among smaller institutions is where I'm very happy to see growth come from. We've rebuilt this revenue base before. Retail went from 55% of our revenue at its peak to about 26% and banking continues to grow, and that does not change. Our core differentiator of gold standard barcode level decisioning is durable, and it gets more valuable, not less as AI gets more intelligent. So I stand behind this business, our people, our product, what we do, and I will say this, every single day, I love looking at the number of people that I stop being -- and I shouldn't say I, we as a company, stop being victims of crime. So with that, operator, I'll turn it over for questions.

[Operator Instructions] Our first question comes from the line of Rudy Kessinger with D.A. Davidson.

I appreciate the candor on the call and obviously, a difficult situation with your largest customer. What -- Bryan, like with this customer where they are evaluating alternatives, is that across all use cases you currently serve them for? Or is it for some use cases? I'm trying to get a sense like is that full 29% of revenue potentially going to be disrupted or at risk? Or is it only certain use cases?

I'm going to tell you this. It is across not just us. It's everything that they do. And I will also say that they are changing what they say almost minute by minute in terms of what we expect. So it puts me in a way in a hard spot because I can't give -- like I don't know. They -- we got an update from them literally an hour ago. So I don't know. When a company has a merger, things happen. And I can't say yes, no or to anything. So it puts me in a tough spot, you're in a tough spot. And I'm just saying that I believe -- and I'll use all those terms, right? I believe, we believe they understand we're the best at stopping their fraud. So that's about as much as I could say, Rudy.

Okay. Got it. Okay. And I guess you had mentioned they had just signed a new purchase order that indicate you're very much still going to be in the mix. I guess with respect to what they did communicate to you as far as how much you should expect to see transaction volumes go down, did they indicate they might go down 25%, 50%? Like what's the kind of range that they communicated?

Honestly, like the honest way I can answer that question is that it's nowhere -- they gave us, I'll say this, kind of like a doomsday scenario, and they are nowhere near it, and it is -- and Adam, please jump in here. But the purchase order they gave us will not support them for very long in a way. And it's like one of their normal purchase orders because their volume is still so high that unless something drastically changes, they're going to have to do another purchase order. Adam, would you agree?

Yes, I would agree, and I just sympathize with Rudy and our other folks following because if you look in our Q, and I know you guys haven't had a lot of time to look at it, but if you look in the notes and MD&A, we do talk about what the customer said would happen. We are on this call today halfway through the quarter and 6 weeks after the June 30 date, not seeing what they told us, right? So we're in this never -- no man's land of trying to tell you guys what we see and what we expect. What do we expect? We probably expect if it continues in the way that it is right now, that revenue in 2026 would be higher than 2025. But it's early days, and it's very volatile. And it is substantially all the use cases. It's not all of them, but it's substantially all where the volume is. And we just -- we wish we had more details to share with you.

Yes. Adam and I were talking about how we need higher blood pressure medication because these guys are up and down and up and down in terms of what they're telling us.

Got it. Okay. Last one for me. I know there's going to be a lot more questions on this specific customer. So I want to maybe ask something else. The Banking and Lending, 48% of revenue, what was the growth rate on that total vertical year-over-year? And then you also mentioned the rest of your customer base, excluding this one customer, 19% revenue growth in the first half. Just want to again, house cleaning, clarify. Was that 19% year-over-year growth first half '26 versus first half '25 for the rest of the base ex that customer? Or just if you could clarify that, that would be great.

Adam?

I can take the first one there, Rudy, with the banking being about 40% of revenue in the second quarter in 2025. So it's a shift of the pie from, let's say, 40-ish percent to about 48%. And then the growth of 19%, I'm assuming is -- I mean, I think, Bryan, it's fair to say that, that's pretty broad across the whole.

Yes, it's across, yes, all verticals.

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