Greetings, and welcome to Intellicheck First Quarter Fiscal Year Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gar Jackson.
Thank you. You may begin.
Thank you, operator. Good afternoon, and thank you for joining us today for the Intellicheck First Quarter Fiscal Year 2021 Earnings Call. Before we get 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 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 These forward looking statements are based on management's current expectations and beliefs about future events. As with any projection or forecast, they 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 4, 2021. Management will use the financial term adjusted EBITDA on today's call. Please refer to the We will begin today's call with Brian Lewis, Intellicheck's Chief Executive Officer then Bill White, Intellicheck's Chief Financial Officer, who will discuss Q1 fiscal year 2021 financial results. Following their prepared remarks, we will take questions from our analysts and institutional investors. Today's call will be limited to 1 hour.
And I will now turn the call over to Brian.
Thank you, Gar, and thank you to everyone who has joined us for our Q1 2021 earnings call. I'm excited by what was accomplished this quarter, but even more so by the greater signs of openings we see, the additional use cases our existing clients have and are putting into place, as well as the deals in play and the increasing pipeline that we believe is on the horizon. When I factor in our 3 new sales hires, I believe that we are setting ourselves up Very well for the coming year. Before I get into all of that though, I'm going to highlight some of our financials. Q1 SaaS revenue grew 24% over Q1 2020, with total revenues down 8% due to fewer ancillary hardware sales versus the comparable Prior year period.
In Q1 2021, 97% of our revenue was SaaS revenue and as a result, our gross margin for the quarter 92%. SaaS revenues in Q1 versus Q4 was also up by 8%, I would point out that in a normal world, we have consistently seen that there is an approximate 12% drop in transaction volume from Q4 to Q1. I think the smaller than expected dip points to some signs of reopening and higher store traffic, which we'll touch on in a moment. We had a net loss of just over $1,000,000 in the Q1 that included $981,000 of non cash stock based Compensation expenses primarily related to attracting and retaining talent. Q1 2020 EBITDA was 52,000 compared to a positive 144,000 in Q1 of 2020 and just over 634,000 in Q4 of 2020.
Now turning to signs of reopening and higher store traffic. We compared transaction volumes in Q1 to the previous year to estimate the impact of COVID. Similar to Q4, we continue to see in store transaction volumes down in the same 20% range. Since Q2 of 2020 was almost a total lockdown, to see how we are trending through April, we compared same store volumes for clients fully implemented In Q2 2019, the good news is we're seeing a steady return to normal transaction volumes with the numbers Depending on the store, generally down in the 10% to 15% range, an improvement on the down 20% we saw in Q1. We believe this is in line with the widely reported trends in mall traffic declines.
Logic would suggest that all the retail On bank locations we brought online during the pandemic would also be down in the same ranges. As we look at recent developments with some of our current clients and Some of the additional use cases they are putting in place, we believe that there is more good news ahead. By way of background to those who are newer to this story, When I joined Intellicheck just over 3 years ago, I focused our efforts on in store validations of people. This was an important initial step because it proved our value proposition, demonstrating that our solutions provided the most certainty And as our clients tell us, Intellicheck delivers far more certainty than any of the competition relying on OCR. Not only did that focus allow us to sign clients, We also signed major reference clients, giving us a lot of credibility in the marketplace.
At the same time, we knew that we had to do more than just ID validation, especially in the digital channels. It was clear that we needed to become a platform that Provided more to our clients, which we have steadily been doing over time. Our first step was to add facial biometrics to the platform, So if you are not standing in front of me, not only can I be certain that the idea is real, but also that the legitimate owner is holding it? We have subsequently added the ability to read the words on the front of the ID to make sure they match what was encoded in the validated barcode. We have in production and will be releasing shortly even more key indicators to help detect fraud.
We will provide our clients with Fraud scores based upon the VPN, the mobile device, phone number and address validation for any digital transaction Provide our clients even more certainty in any transaction. I've said this before about certainty, but it's worth repeating because this speaks directly to our value proposition. Our clients start with us because they understand that it doesn't matter what you do after the first step If your first step is only right 2 out of 3 times. Our certainty provides the greatest first step in any transaction. That is why our clients are expanding use cases for the Intellicheck platform for both physical and digital transactions.
As we look at the updates on the expanded use cases of some of our existing clients, it really underscores my point about certainty and our value proposition. For those who asked, I will go back to discussing them by the numbers we have previously used to reference them. Financial Services Company number 2 is in the process of rolling out 2 new retailers. 1 is a footwear retailer with over 1,000 locations. The other is a pet products and services retailer with 1500 locations.
Both retailers will be using us for new account opening and loyalty account lookups. Financial Services Company 3 has completed integration and has begun Phase 1 rollout for the largest home improvement retailer in the United States. This will be a phased rollout as Retailer has multiple point of sale systems, self checkout, assisted checkout, customer service and commercial checkout. Phase 1 is new account opening at self checkout. Phase 2 is for the POS for the assisted checkout for new account openings.
At the same time, the bank is also in discussion with the retailer to add account lookup to all phases. Phase 1 rollout is expected to be completed by the end of this quarter. Financial Services Company 3 is also finally going to begin rollout While hardware is not our focus, as I have said in the past, we will purchase it for clients as an accommodation If it helps the client, and we can mark the cost up. Number 3 placed an order worth up to $2,700,000 for scanners for the teller workstations in the branches. We expect all scanners to be delivered by early Q3 and rollout to the branches to begin as soon as July.
Financial Services Company 4 is leaning heavily into the digital space. They are in development now to add new use cases, including the digital channels for online credit applications for 2 existing clients. They are also in development to bring live for both in store and digital use cases, a Midwest chain of home improvement stores with over 300 locations. These use cases and new clients are expected to go live by the end of Q3. And the progress doesn't stop there because we have another milestone achievement with this client.
Yes, it is being fully rolled out. Financial Services Company 8, the Canadian provider of buy now pay later financing Was acquired by a company that provides online, mobile and branch based loans and financial services to under banked customers. Given the success number 8 has had stopping fraud with Intellicheck, the new owner is doing the integration work to pilot our platform for all of their online Financial Services Company 9, The Midwest Bank, has completed the work to integrate our platform into their mobile banking The release date had been scheduled for this month, but it's currently delayed as they are tweaking their user interface. I believe that the moves by these financial institutions to expand on the success they have had with Intellicheck platform and the physical use cases and into the digital use cases makes an important statement. It proves that our platform works equally well in both environments.
I'm also pleased to share the good news about our robust pipeline. Keep in mind that we don't consider a company a prospect until they have entered into an NDA with them, so we can discuss confidential details. So far this year, we have signed 25 NDAs with prospects ranging from the top banks we are targeting to potential resellers. I think that this is a tremendous number given our limited sales force, which is why I said on the last call that we would be hiring. And as you may have seen from the recent press releases, we have done just that.
We have added senior talent to the team with Garrett Gaffke, David Andrews and Bruce Ackerman. Garrett brings a wealth of product strategy knowledge and is already providing value to the team that I knew he would. David's marketing acumen has significantly increased lead generation. And as a person with a strong track record in sales management, I can candidly say I wish I had been half as good as Bruce. I also said that we'd be hiring salespeople and we've made good on that commitment.
We've hired 3 additional salespeople since the last call, bringing our total to 9. I also want to address a question that has been raised several times. I've been asked why we don't just hire 20 salespeople at a time. Again, coming from sales management, And Bruce agrees, if you bring on too many too fast, you will fail. The reality is productivity of the team will drop, The new sales hires will not be successful because you can't devote the time to properly train them and in the end, you will lose many of them.
We plan on continuing to add to the sales team when we feel we have the bandwidth to effectively train them. That way we know we are properly investing in our talent to make sure we have a productive 15. Given what we have accomplished with the limited size of the team we've had, I can't wait to see what we achieve with the larger team under Bruce's direction. I strongly believe Intellicheck has demonstrated its strength and resiliency underscoring what I shared with you earlier about our accomplishments. Despite the many challenges that we have had from this once in a 100 years national health crisis, we have continued to implement our strategic plan and I am anticipating more positive developments in 2021.
We continue to expand within our existing client base, which demonstrates the certainty of our platform, while at the same time we are signing new clients. We are rapidly expanding into the digital world and offering our clients additional fraud indicators Add to the certainty of person not present transactions. We rounded out the team to fill some of the gaps I saw in skill sets. I know that you are as excited as I am to see what we can do with more talented salespeople out there spreading our message. With that, I will turn it over to Bill to discuss the financials.
Thank you, Brian, 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 Q1 March 31, 2021. I'll begin with our Q1 results. Quarter over quarter SaaS revenue grew 24 percent to $2,776,000 versus $2,238,000 in the prior year. Total revenue for the Q1 ended March 31, 2021 decreased 8% to $2,863,000 compared to $3,115,000 in the prior year comparable period.
Gross profit as a percentage of revenue was 92.3% for the quarter ended March 31, 2021 compared to 77.8% for the quarter ended March 31, 2020. The increase in gross margin was primarily due to sales mix in the prior period as we sold scanning equipment to a bank preparing to roll our software out to their bank branches, which are normally sold at lower margins. Operating expenses that consist of selling, general and administrative And research and development expenses increased by 55 percent or 1,319,000 to $3,717,000 for the quarter ended March 31, 2021 versus $2,398,000 for the same quarter in 2020. The increase is primarily due to higher stock based compensation costs and increased headcount and expanded research and development efforts. The company posted a net loss of $1,060,000 for the 3 months ended March 31, 2021 compared to a net income of 27 for the quarter ended March 31, 2020.
The net loss per diluted share was $0.06 per diluted share versus 0 in the prior period. Adjusted EBITDA for the quarter ended March 31, 2021 was a negative $52,000 For the quarters ending March 31, 2021, 2020. Now I'd like to focus on the company's liquidity and capital resources. As of March 31, 2021, the company had cash of $12,600,000 working capital defined as current assets minus Current liabilities of $13,400,000 total assets of $24,200,000 and stockholders' equity of $22,100,000 During the quarter ended March 31, 2021, the company used net cash of $510,000 compared to net cash used of Net cash used in operating activities was $471,000 for the 3 month period ended March 31, 2021 compared to $461,000 for the same period in 2020. Net cash used in investing activities was $48,000 for the 1st 3 months of 2021 compared to net cash used of $115,000 For the 1st 3 months ended March 31, 2020, and we generated $10,000 from financing activities for the 1st 3 months ended March 31, 2021 compared to $235,000 for the same period in 2020.
The company has a $2,000,000 revolving credit facility with Citibank that is secured by collateral accounts. There are no amounts outstanding under this facility. We currently anticipate that our available cash as well as expected cash from operations will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. As of December 31, 2020, we had net operating loss carry forwards of approximately $17,000,000 I'll now turn the call back over to the operator to take your questions. Operator?
Thank you. At this time, we'll be conducting a question and answer One moment please while we poll for questions. Our first question comes from Scott Buck with H. C. Wainwright.
Please proceed with your question.
Hi, good afternoon, guys. Hi, Scott. I know you added some heads during the Hi, very good. I know you added some heads during the quarter. I'm curious if there's anything else or any other kind of investment in the business you feel like you need to make, Brian, To have the right infrastructure in place to maintain the current top line growth?
Yes. We've put Some marketing tools, they're not I wouldn't say they're overly expensive, but just ways for the marketing team to interact with Sales team run campaigns, those types of things. And as I've said, we will be spending some money on sort of proper targeted marketing. I don't want to do the blast everywhere. To me, it doesn't make any sense.
We know who our target audiences are and being smart about it. But one of the things that I really want to make sure that we do is increase the brand awareness of Intellicheck. We've got lots of good word-of-mouth from our talking to other clients, but I want to make sure that our position is very, very strong because I look at it as I'm going to go back to that word certainty. We do something nobody else can, and we need to make sure people know that. So I think there'll be a little bit more marketing spend.
All right, great. That's helpful. Second one, I'm curious, you've been at this for 3 years now. And then given the amount of success that you guys Pat, are you starting to see any change in the way your competitors approach either your current customers or potential customers? I mean, are you seeing changes in pricing or anything along those lines?
Not from our end, Anything along those lines?
Not from our end. If anything, I'd say we're seeing the ability to increase our pricing. And I'll go back to sort of some of the competitive moat things that we have, particularly when we're talking in the physical world. The fact that we work with all the existing hardware that's in place, the only reason that we ended up doing this hardware purchase Number 3 is they wanted us to also authenticate for them passports and that requires something different than the normal Check capture machine that they have. So that was the reason for that particular purchase.
Otherwise, we work with everything. Nobody else doing OCR So it is a significant outlay for anybody looking to do it across scale where you need to put in a lot of equipment.
Great. That's helpful. I appreciate the time.
Great. Have a good one, Scott.
Our next question comes from Mike Grondahl with Northland Securities. Please proceed with your question.
Hey, guys. Just the first question, I don't know if you commented this quarter, but the number of implementations in 1Q And what does that backlog look like?
I don't know, Bill, if you That's under you if you want to quick look it up. The backlog continues to expand is the way I'd look at it. Bill and I were looking over the list the other day of what's in queue and what's going on. And it is strong. It is robust.
I look at between what is new, new coming in the door versus the existing Growth at our clients, growth at existing clients, I should say, one of the things that we're heavily focusing on Again, with new hires and focus of the sales team is to make sure that we're grabbing new logos And at the same time, we've got people who are talented in the land and expand, really good account management. So Everything that I've seen is showing that the pipeline of implementations is only growing.
Got it. And maybe why Bill is looking up that for 1Q. Just the 25 NDAs signed in 1Q, I imagine those vary from small to large, but can you comment on the mix at all? Like are you Excited about some larger ones or how do you think
about them? I am exceptionally excited About the names that we have on that NDA list because two things. I like the NDAs, especially for the very large clients because it proves real intent in my opinion because they're not just going to willy nilly sign them. Most of the larger organizations have a little bit more checks and balances on just going out and doing an NDA. The other thing I like about it is that frees us up To start talking about who our existing clients are, which gives us massive instant credibility.
And Usually, the reason that we're going into an NDA is we're beginning to talk about a proof of concept, Some sort of trial and pricing. So it's to me, it's a significant step. We know that both parties now have skin in the game. And you're right to say it runs from sort of some of the large guys, those banks that we've been targeting, The 10 that we've mentioned is the main providers of credit cards, down to some resellers who could be, I think, Really good for us in getting in different spaces. Some of the FinTech companies out there doing a lot of the buy now, pay later types of things.
So it's a mix of large and medium, in both physical and digital use cases.
Got it. And Bill, could you help us, SG and A, R and D and the stock based comp had pretty healthy step ups in 1Q. Can you kind of help us think about the quarterly run rate for those three items the rest of the year?
Yes. We probably in this right in the $650,000 range, 650,000 to 700,000 a quarter non cash expenses and that would be our non cash Equity grants and whatnot that are amortized over the year.
Got it. What about SG and A and R and D? What do those two categories look like?
Yes. I would Guide in the with the ramp up here in the 25% to 35% range of excluding the Non cash expenses, so 25% to 30%, 35% in the non cash expense OpEx.
That type of growth rate, is that what you're describing?
No. Year over year, Look for about a 25% to 30% OpEx increase.
Got it. Okay. Great. And did you ever find anything on implementations in 1Q?
I'll have to I'll get back to you on that. I was thinking it was another number, but let me get back to you on that, Mike.
Sure. No problem, Bill. Okay.
Thanks, guys.
Our next question comes from Roger Lidell with Clear Harbor Asset Management. Please proceed with your question. Yes. Good afternoon, gentlemen.
I'm interested in the 2.7
$1,000,000
Hardware Sale. And Just the for the moment, the accounting for it, will it be a deferred revenues item and amortized or key to the rollout of Software, just walk us through anything that would help us on that.
Yes. Brian, you
want me to take that one?
Yes, please, Bill. Yes, please.
You bet. Yes, Roger, it will be recognized when it's being shipped FOB Shipping Point. So the title will transfer when it leaves the docket of manufacturer. So we'll be recognizing that as it's shipped.
Okay.
And
give me some sense of the amount of This could be just a suggestive, not write down to dollars, obviously. You have had some contracts that are meaningfully off market now based on The value added by utilizing products and is there A backlog of those old contracts or have some of the significantly mispriced ones already rolled And by extension, how do you rate the How do you describe the situation right now in terms of you're trying to get something more per scan to reflect the value Added for the customer?
So, Roger, we haven't had anything significant roll or come up for renewal. However, this year, we do have 2 contracts that will be coming up for renewal that I would consider significant, and that's Numbers 34. So, and those will obviously be looking to Get more value out of it for the services that we're providing.
Okay. The explosion in fraud, occasionally we hear from you or just in the press About the figures, I would have thought there would have been more translations For you and some of your competitors, from that Unwelcome expansion in the fraud side. Is there a lagging effect here that I'm simply not Focused on to explain the disconnect between the explosion figures and you Have remedies for that? I would have thought it would be steep rent.
I think that there's a couple of things, because You look at the numbers and the increase every single year in the amount that's lost to fraud, I mean, it goes up double digits every year, right? So now I think Total fraud losses in the U. S, I think, are saying between frauds and scams like $50,000,000,000 some $56,000,000,000 Something tremendous. Part of it is, again, getting out education that it can be done, which is one of the reasons I want to start Spending some money on brand awareness and thought leadership, because I think there's still a ton of people who don't think that there's something that can be done Without making it super, super complicated, you talk about, in a way you look at all of our competitors and one of the things that we're really relying on It is a much more complicated process with more friction that requires facial biometrics. And so the reason they do that and some have even written papers that If you use facial biometrics, your fraud attempts go down.
Well, so does your cost because you got to pay for the biometrics because they're saying it goes down because people don't want to have Based on camera, so you're making a much more complicated process, whereas with us, we can tell you that the license, They're using something that isn't real. So do you really want to add the friction in for the boundary case of where somebody maybe stole relative's license and is trying to do something? So in my opinion and most of our clients' opinions, the answer to that is no. So it's sort of a little bit of inertia, A little bit of people don't know that there's something out there. A little bit of technology, some people, their systems, they're trying to get them up Speed to be able to handle and take in data like we can provide to them.
So I think in a way, a couple of years ago after the I'm sorry, the Equifax breach, there was a big uproar about it. I think what we've seen happen in the past year is, the criminals changed how they're going about doing it and perpetuating identity theft and really move to the digital channels. So that's why we're seeing a lot of our clients begin to throw in, all right, how do we get you in our digital channels? Because Stores are closed, but the Crooks were still looking to make a living. They decided they were going to do it online.
And that's what really expanded. And I think that we'll continue to see uptick in growth. I think that some of the big players, the big banks we look to sign, They move a little bit more slowly on almost everything, and it's a big decision because once they go with something, they don't want to have So I think the more we can get our presence known, our brand awareness It will make it easier for us to get into more and more of these clients. And again, one of our big pushes is Get our clients together and our prospects and have our clients tell them why they should use us, because it's always a heck of a lot better when your competitor says, no, go use Intellicheck Over a month of my sales people doing it brings a lot more credibility.
Okay. Final question. In terms of the recovery, I can't really sort out The impact of this variant and that variant at one state opening up and now the closing down And then you get the contribution to revenues of the in store Versus the digital channels. All right. If recovery continues, Let's call it the optimistic picture that the vaccine is the real driver And the variance will fade away, not disappear.
But where do you see the recovery coming? Is it going to be in store Cannibalizing digital or well, you take it from there.
Yes. I think that I don't see it really cannibalizing it. I think people have been talking about the death of brick and mortar forever and it just doesn't seem to happen. A ton of studies show millennials like going to stores. Retail mall traffic had been down, but is around that 20% range according to that Wall Street Journal article that came out, but It's already coming back up.
You've got New York, New Jersey and Connecticut said that they're going to lift Indoor restrictions, I think on the 19th, the governor of Pennsylvania just came out and said they're lifting everything on the 31st and as soon as 70% of the population is vaccinated, the mask mandates go away. So I think we're beginning to see it. And those are the states that make the real impact, right? Those are the population heavy, our client Heavy, a lot of our retailers are in those states. So I think that the more we begin to see people getting comfortable Because they got the vaccine or they're comfortable because they don't want it and they're probably still going out anyway.
Those are the things that give me signs of encouragement Is these very large states now putting dates and targets on what it takes to fully open? And I think once we get there, then we see volumes return to normal. And If these places are opening up in the middle of next month or the end of next month, I think that shows well for the rest of the year.
Our next question comes from Amar Anad, a Private Investor. Please proceed with your question.
Hi. Thanks for taking the call. I've noticed in a lot of your communication to shareholders, you have really focused on banks And security and anti fraud within banks, I'm curious how you think about the opportunity in e commerce, In cryptocurrency, in cannabis sales, in anything to do with the sharing economy where people have money online, whether it's an How do you think about that sales motion, etcetera? Yes.
We're going after all of that. We've already got a pretty good presence in cannabis And a lot of that comes from our law enforcement. Many of the states where they sell cannabis, The state level age enforcement bodies, like the Washington State Alcohol, Tobacco and Cannabis, There are clients, so then of course the people that are selling it want to use the same product that they're going to be measured by. Sharing economy, all those types of things we're targeting. And it's one of the reasons that, As I said, I want to hire salespeople.
I look at my top sales guys and I'm like, you're working yourselves to death and thankfully they're highly motivated. We went after what we did because volumes are so much higher in terms of validations and the transactions that need to take place And some of this retail stuff, it was a really good spot for us now to say, well, if this huge bank trusts me, you probably Good too, right. It provides a lot of credibility, when we can talk about who, our clients are using us for identity validation. So started there, as I said, because it was a good first step. Obviously, now I look at I see tons of places where You're going to have to prove that you are who you say you are.
I want to make sure we're staffed up to get to all those because I do think that they'd be important revenue sources.
Thank you. And slightly slight change in direction. From channel checks with Jumio and Mitek for some of their Lower volume clients, they're getting as much they're charging as much as $1 a scan. And for some of their bigger clients, they're charging $0.25 a scan. So do you see your pricing getting in line with pricing that's as high as Jumio or Mitek?
And How quickly do you think you can get there?
Well, we haven't given out any of our pricing, but I also say that there's certain things When you're doing the channel check, you should make sure is that for ID validation only or is that also including facial recognition? Because again, they usually have to go hand in hand, Because from what our clients tell us, a 60% to 65% accuracy So you range on checking on proving that the license is real or not when you're using OCR. So, I don't know if that's a fully baked in price, but certainly, We've got clients who are telling us the amounts of money that we are saving them or the reputational risk that we're providing them On two fronts, one, because we're making sure that somebody's identity didn't get stolen and second, because we're so accurate, we're also not Telling a good client that your license is bad, right, because it's that happens almost as much as they don't do the right license. When you're judging a license or an ID on its validity based on how it looks, Law enforcement tells us they can't do it and they're trained. So I don't know how somebody in a call center over off Sure is going to be able to do that.
So you get a lot of false negatives in addition to the false positives. Our clients, simple, easy, quick, and we're certainly showing at every renewal that we have that we have pricing power And can have in the past and will continue to do so significantly raise pricing.
Got it. Yes. And just to clarify, my comment Their pricing was just on the authentication of the ID, not with the selfie match or the live video match.
Got you.
Yes, that's different than what I've heard, but yes, okay. Thank you. Economy and people's health and all those things, which I think is going to bode well for us. I'm very excited about the hiring that we're doing, the caliber of the people that we brought in at every level. Our messaging is improving.
Our lead generation is improving. So I think we've got a lot of stuff And in the factory that you will that we are really optimizing, which I believe is going to help us to continue to grow and hopefully continue to grow even faster rates. So thank you everyone and I look forward to speaking to you all next quarter.
This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.