Greetings, and welcome to the Intellicheck Third Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Bill White. Thank you Mr. White, you may begin.

Thank you for joining us today for Intellicheck's Q3 Earnings Call. This is Bill White, Interim CEO and CFO. Before we start, I will take a few minutes to read the forward-looking statements. 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, 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 changes, new information, subsequent events or otherwise. Additional information concerning forward-looking statements is contained under the heading of Safe Harbor Statement and Risk Factors listed from time to time in the company's filings with the SEC. Statements made on today's call are as of November 14, 2017. Management will use financial term, adjusted EBITDA, 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 this term. We also anticipate that our quarterly report on Form 10-Q will be filed with the SEC later today. Before I discuss the financial information that was contained in our press release for the third quarter ending September 30, 2017, which we released a short while ago, I will begin with the statement from our Board of Directors. As you…

Thank you. [Operator Instructions] Our first question comes from the line of Mike Grondahl of Northland Capital Markets. Please proceed with your question.

Yeah, hi. Thanks, Bill. A couple of questions here. Specifically on the doubling the sales force and adding some engineers, what have you done so far on those two initiatives?

[Technical Difficulty] and into specific numbers, but it's in process. We should have a full - we should have the full complement by early 2018 of the new employees. We want to find the right people.

Got it. I think I was muted for a second there. Did you just say for both sales and engineers that by early 2018 you'll have the people hired that you want?

Yes.

Okay.

Assuming we can find the right people, Mike. Particularly, in the sales roles, we are looking for very specific talents and background, primarily in the retail and banking verticals. So it's -- we want to find the right people.

Sure. Got it. And then can you -- Nlets, I didn't quite get what you think the timing is on that $1.1 million kind of in the pipeline starting. Do you have a sense for when that starts?

Yes. Mike, we are already turning on states. We should have 7 to 10 states turned on by the end of Q1 next year. So look for press releases as we light up these states, we'll issue press releases and let everybody know what we're doing.

Okay. So I think in August, we kind of thought it would take 60 days to turn on a state and we're kind of at the 90-day point. Is that just taking longer? Or kind of what's going on there?

Well, all of that is beyond our control, Mike. We can only move as fast as our customer. So that's why we are turning these states on in parallel rather than serial. So we have several states that are in process at any time. So -- and we should have -- I'm pretty confident we should have at least 7, up to 10 turned on by the end of Q1.

Got you. Okay. And then if you look at 2Q to 3Q, you sort of picked up, I think, it was $220,000 of SaaS revenue. How was kind of the pipeline or really the carryover into 4Q? Trying to get a feel for when some of those started, so how they'll be affecting the fourth quarter?

Right. Mike, I'm not going to give guidance on that but growing our SaaS as we've talked about before is a critical element for us and that's where our focus is.

Got it. Okay. And then maybe just lastly, when you were going over the pipeline, there was a handful of statements about 2018 either first quarter or second quarter. Is it fair to say that you haven't lost anything? It's just that some of these are taking longer than you might have thought earlier in the summer.

Yes. That's right, Mike. We haven't lost -- I mean, every one of our pilots has resulted in a successful outcome either in preventing age or in stopping fraud. So we haven't lost any business. We have 7 -- 8 pilots underway currently. We have 7 new pilots being scheduled and 7 that have been completed and we are in the process of deploying those pilots into full production. It takes -- again, we can only move as fast as our customers will move. Many times it requires IT support. So we're doing it as fast as we can. It's not as fast as I want but we are doing everything we can to make the process as quick as possible.

Got it. And just - I want to make sure I heard that right, so there are 7 pilots that are completed and those are moving towards a live -- generating revenue. And what's the revenue number behind those 7, yearly SaaS?

About $2.5 million, $2.5 million or so, approximately.

Got you. And then I think you had -- you said 8 currently in pilot?

Yes.

And what's the rough revenue number behind those?

Mike, I don't have that broken out right now.

Got it. If you had to guess? Is it another $2 million to $3 million or is it...

The 8 that are underway right now are on the smaller side. I would say it's maybe a couple of hundred thousand, maybe $250,000 in SaaS. Not a huge number.

Okay. And then there sounds like 7 new pilots that are getting teed up. Is that correct?

7 new pilots that are getting teed up, yes.

Okay, great. Thanks, Bill.

You’re welcome, Mike. [Operator Instructions] Our next question comes from the line of Tanner Hoban of Oppenheimer. Please proceed with your question.

Hey, Bill. Thanks for taking my question. It appears that SaaS revenue was pretty strong for the quarter, up over 70%. Wondering if you can help us understand -- you talked a bit -- a little bit on the call but can you help us understand some of the products that are driving that, may be outside of that large deal you did in the Northeast furniture store? And additionally, license revenue was down sequentially approximately 40%. Can you help us understand what were the soft points there? And how we can look at that license revenue softness going forward, maybe out to 2018 as well?

Yes. Tanner, license revenue -- what specifically are you talking about?

Outside of SaaS revenue. Just the -- looks like you did approximately $400,000 in Q3 as compared to $650,000 in Q2.

Yes. Tanner, that's revenue other than SaaS. So that could include hardware sales and other types of revenue. So it's not only license revenue.

Right.

Yeah. No problem. With respect to the SaaS, the majority of the SaaS is being driven by -- currently being driven by our retail product. Age is about 4%. SaaS was about 75% of our total revenue stream this quarter with -- excuse me, retail and age was about 75%. And our Defense ID product was about 25%. So depending on the mix that -- which is why our margins were higher because we have lower equipment sales this quarter.

Right. So I guess moving forward, should we expect -- was it just a seasonally soft quarter for the hardware sales and the license plus hardware sales? Or is that something that we should expect going forward around that $400,000 just in the shape of the new market dynamics?

Right. The equipment sales are -- they are hard to predict because they are sporadic and they are dependent upon our customers' projects. So it's not an easy number to forecast. With respect to just overall margins, I said it a couple of years ago when we were moving to the SaaS model that I expected margins to land and settle out in the 85-point range. I still think that's about right. Maybe a little higher than 85, but right in the mid-80s is where margin should shake out.

Got it. Got it. And on the margin discussion, actually, you previously guided EBITDA to be positive here in the upcoming quarter. I believe that's -- I guess, can you provide us with additional color on any sort of profitability guidance from...

Yes, sure. We had said that we were going to be EBITDA positive midyear in '18. I still believe we're going to be EBITDA positive and I'm forecasting EBITDA positive in '18. I'm just not saying mid '18.

Got it. Got it. And lastly, just in your search for your CEO, can you help us understand some of the key strengths Intellicheck is looking to, I guess, improve in its leader?

I can't rather than what the prepared remarks from the board. I really can't add any more to that.

Got it. Well, thanks, Bill. I appreciate it.

You’re welcome, Tanner.

Our next question comes from the line of Barry Bergman of Alba Investments. Please proceed with your question.

Hi, Barry.

Hey, Bill. How are you doing? He asked one of my questions on the CEO search and things like that and what was going on. But it sounds like the board's handling that in terms of going out and trying to attract people?

Yes. As a matter of fact, they'll be interviewing candidates this month.

All right. With the cash burn of about $2 million this year, is that where we are?

Cash burn so far this year...

I saw the expenses actually creeped up this quarter as opposed to -- on an annualized basis, I think the third quarter sort of -- annualized, it looks like they creeped up. I'm just wondering.

Yes. That was as a result of -- again, I think in the -- I said that in my script that the sales and engineering salaries and consulting and then some legal where the difference is, increases.

Okay, thank you.

You’re welcome, Barry.

Our next question comes from the line of Greg Weaver of Invicta Capital. Please proceed with your question.

Hi, Bill. I appreciate the detail on the pilots, that was helpful, also the EBITDA comment, thank you for that. One further question a little bit. So you're doubling the sales force and hiring engineers. I guess was there any -- as of how much you're doing on the engineering side in terms of increasing headcount?

7 or 8 people, Greg, right now is what we've got planned, that's in our plan.

For engineering?

Yes. We're about halfway there.

Okay. And are any of those folks like FAE, field application engineers or -- I'm just trying to get a sense about your comment about trying to - customers in terms of doing some of these rollouts. I don't know if there was anything on your side there that you feel with some extra people could go a little better?

Yes. That's -- when I made the statement that we scanned tens of thousands of licenses last year and now we're scanning millions, that requires support on the back end. So some of these -- some of this resource is going to going into product support. Some of the resource is going to be going into scaling our systems to accept this -- these types of volumes of transactions. So with the growth, there's just -- there's back end and engineering work that needs to be done in addition to looking forward and looking at the biometric technology that we're looking to incorporate into our products going forward. So it's both for customer support, existing customers, existing systems and looking to the future.

Okay. But at this point in terms of the number of deals that you mentioned that were complete through the pilot phase but it's a little bit on the rollout for a number of them that's nothing on your side in terms of a staffing situation, it's kind of more on the other -- the client side?

Yes. Yes. No, we haven't dropped the ball, Greg. It's -- the delays are entirely on the customer side.

Okay. That's helpful. Appreciate that. And just a little more color maybe on the luxury retail you mentioned. So you said they're rolling out the product at their 20 high-risk stores. Is the intention for them to do it at all of them ultimately, given the ROI there?

Absolutely. And these are the stores that they will rollout before the Black Friday blackout. So there's all intention of after the end of the year here to rollout to the remainder of stores.

Got you. And that's a total of how many, roughly?

80 in their brand stores and then they have an off brand of about that many as well.

Okay, great. That’s helpful. Okay. Yeah, I think that was it from me. Thanks for the call and taking my questions.

Yeah. Thanks for the questions Greg.

Our next question comes from the line of Jim Kennedy of Marathon Capital Management. Please proceed with your question.

Hi, Bill.

Hi, Jim.

I wanted to back up to your prepared remarks for a second and you used the term brick-and-mortar in the paragraph in which you were talking about your banking relationship. Did you mean to imply that your banking customer is going to be rolling out your technology in their brick-and-mortar or in their clients, their retail brick-and-mortar store?

Jim, thank you for that clarification. This is in the -- this is for the bank brick-and-mortar -- for their banking operations. We were selected in an RFP and they selected our technology to be rolled out into their -- in their bank branches.

Okay. Very good. So when I've been in my bank and then ask for an ID before they basically look at it, they don't do a whole lot with it, so now they'll be able to scan the ID directly in the bank while the customers are there?

Yes sir.

Okay. Very good. Okay, thank you.

Thanks, Jim.

There are no further questions over the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks.

Well, I thank everybody today for being on the call. And please look for press releases as we make progress on our plan. I will be issuing press releases and I look forward to a fantastic future for Intellicheck. Thank you very much.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.