Greetings, and welcome to Intellicheck Third Quarter 2018 Earnings Call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Gar Jackson with Global IR Group. Please go ahead.

Good afternoon. And thank you for joining us today for the Intellicheck third quarter 2018 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. 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 such changes, new information, subsequent events or otherwise. Additional information concerning forward-looking statements is contained under the headings of 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, November 14, 2018. Management will use the financial term adjusted EBITDA in today's call. Please refer to the company's press release issued this afternoon for further definition, reconciliation in context for the use of this term. We will begin today's call with Bryan Lewis, Intellicheck's Chief Executive Officer; and then Bill White, Intellicheck's Chief Financial Officer, who will discuss the Q3 financial results. Following their prepared remarks, we will take questions from our analysts and institutional investors. Today's call will be limited to one hour. I will now turn the call over to Bryan.

Thank you, Gar. Good afternoon. And thank you all for joining us today. I'm continued to be excited about what we're doing here at Intellicheck on multiple fronts. Key to our success is the growing realization across our market verticals of the importance of authenticating a government ID as the critical first step in combating identity fraud, keeping age control products under the hands of the under-aged and increasing police officer effectiveness and safety. As I had said since day one, we believe that the market is coming our way. I was brought on board earlier this year to accelerate the company's growth and I would like to bring you up-to-date on what we have accomplished. But first I would like to remind everyone of the magnitude of the problem we all face with identify theft and the amount of data stolen. I will start with the consumer space, specifically retail where we believe we have the most immediate revenue opportunity because we can show the fastest payback to both retailers and their banking partners. On any given day you'll see an article or research report detailing how identity theft and the creation of synthetic identities is costing billions of dollars a year and is taking countless hours for victims to clear their records. Criminals use stolen information about individuals; I think the data taken in the Equifax breach to create identities that are then used to open fraudulent accounts. Take a moment to think about the frequency of announced data breaches and you will quickly understand the severity of the situation. Just do a quick Internet search and you will see how many records have been stolen. From numerous sources you will learn that easily over 760 million records have been breached this year alone. Additionally 15 of the…

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 third quarter ending September 30, 2018 that we released a short while ago. We anticipate that our Form 10-Q will be filed with the SEC later today. I'll begin with our third quarter results. Revenue for the third quarter ending September 30, 2018 grew 8% to $1.40 million versus $967,000 for the same period last year. Our SaaS revenue was $651,000 for Q3 of 2018 which increased 25% or $130,000 from approximately $521,000 for Q3 2017. The company continues to maintain its strong gross profit. As a percentage of revenue, our gross profit was 89.1% for the quarters ending September 30, 2018 and September 30, 2017. Operating expenses that consists of selling, general and administrative and research and development expenses increased by 7% or $138,000 to $2.82 million for the three months ending September 30, 2018 versus $1.944 million for the three months ending September 30, 2017. This increase was primarily driven by higher headcount for our sales and development personnel and accelerated marketing research and development expenses offset by lower legal fees, facility expenses and stock-based compensation costs. The company posted a net loss of $1.131 million for the three months ending September 30, 2018 compared to a net loss of $1.75 million for the quarter-ending September 30, 2017. The net loss per diluted share was $0.07 versus $0.08 in the prior year. Adjusted EBITDA for the quarter ending September 30, 2018 was negative $1.48 million compared to a negative $888,000 in the quarter ending September 30, 2017. Reconciliation of our adjusted EBITDA can be found in the tables of our earnings release issued today. Interest and other…

Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question is from the line of Mike Grondahl with Northland. Please proceed with your question.

Hi. This is Mike Biercuk [ph] on for Mike Grondahl. Thanks for taking the questions. Maybe just on the per scan change for the large private label credit card company, is that something that fluffy and noisy now for 1Q and is there any other larger accounts that are going to be switched to that model over time?

This is Bryan. You said is it going to be noisy?

This is barred, all that plays out in 1Q for 2019?

The transition will take a while as we move the clients over to the new model. We already have multiple clients that are in play now that we have and had for a while. That transition will be as we move them on to our pure SaaS model versus the hosted model. So that will go on throughout 2019.

Okay. And then just on the top five banks, seems like a really nice win there. Can you just talk about the opportunity a little bit more between the retail side and the branch side and how you guys look at that?

Well, there is a lot more retail locations than there are branch locations. And a lot more scans that will happen at a retailer than there will be happening at a branch location. So as much as I love both bits of business, to me the retail side of it is significantly larger.

Thank you. Our next question is from the line of Ishfaque Faruk with Westpark Capital. Please proceed with your question.

Hi. Good afternoon. Thanks for taking my questions. Two questions please. First one, Bryan or Bill, can you give a sense for the size of the top five - the top five bank contracts? And do you have like similar size contracts in the pipeline right now?

Yeah. The contract as we said, banks can be certainly sizable. From our end of it, a major retailer can be $800 to $1.5 million in revenue from what we've seen from existing clients. So we believe this can certainly be a sizable client.

Okay. And in terms of do you have like similar sized customers in the pipeline or are you in negotiations with some at this point?

Well, that's certainly what I pay the sales force for. So we are in different levels of engagement with multiple banks. As I said, we certainly believe the market is coming our way. People are becoming more aware of the problem of identity theft and realizing that we are as I said a very simple cost effective solution that stops the vast majority of this fraud from happening no matter what the channel.

Okay. My last question. Your R&D expenditure this quarter really picked up, was that a one-time thing or is that a trend going forward?

There was headcount that we added. It's certainly necessary to bring on these clients. So I would - a good portion of that would be ongoing.

All right. Thank you very much.

[Operator instructions]. The next question is from the line of Roger Liddell with Clear Harbor Asset. Please proceed with your question.

Thank you. Bryan, the wording of the hospitality Insurance Group partners that the Hospitality Insurance Group is offering high-tech, the high-tech Age ID, I don't know whether it's equipment, there may not be equipment required or the service. I'm not clear as to therefore the role of Hospitality in terms of driving acceptance among its member organizations through that discount. Could you clarify just how this works?

Sure. So the first thing is they are making all of their clients aware of Age ID, certainly the price point of Age ID which is much lower than a previous company that is from my understanding no longer in business that was providing these services. And they offer a discount which depending on the sales volume of the client, so the bar, the liquor store. The price of their insurance is dependent upon their volume. And the discounts goes up, greater the amount that they are paying for their insurance. So for many of their clients it appears as though that discount would cover or more than cover the cost of Age ID which more often than not does not require them to buy anything because almost everybody in these store they've got smartphones and things or just a minor purchase of a smartphone.

Okay. And several months back there was an announcement about a relationship with perhaps a partnership with the Massachusetts Package Store Association. And is that package store association the type of customer that Hospitality Insurance Group would have or are these unrelated?

They certainly could be, but they are unrelated events. Hospitality Insurance Group does a lot of - the vast majority of their business in the Northeast and a lot of it in New England. So while there is - it's sort of a two-pronged approach, Mass Pack is pushing it because they think it's an important thing for their membership to be doing is verifying age before they sell age-restricted products. And certainly the Hospitality Group believes that it is good prudent business to verify age again which is why they give the discount if you have age verification tools in place.

I noticed one of the states covered by Hospitality, to your point, all of New English except Maine is an area for Hospitality, but also North Carolina was mentioned. And I know Intellicheck is active on a number of efforts, the ABC as I recall, there may be others in North Carolina. Is that just serendipity or is there - is one reason Hospitality is interest in being with Intellicheck is that you're already in North Carolina?

I think that was serendipity, so it worked out well. And you are correct, we're very well represented in state and local enforcement agencies with Age ID in North Carolina. So the more we have the more it helps. So having Hospitality Group giving sort of courage, and the amount of enforcement agencies that we have with the stick certainly should help us in North Carolina.

Yeah. Okay. And then last would be the swipes versus the contract model that's not quite the right term that I was used to previously. I think my view is correct that we should be in different between a swipes method of opening up relationships. It gets the door open, it gets business done, but are truly our margins roughly the same? Is there any way to correlate a swipes approach versus monthly or annual subscription? Is one preferable to the other?

It's sort of a two part answer and it depends on who we are selling to. So when we sell to the retailers themselves who are thinking about adjust their stores and their used cases, it seems that the per store license fee makes the most sense for them and gives us the margins that we're looking for. When we're looking at very high volume scan rates, which is what typically a bank who is offering credit cards to a 100 or more retailers from their end of it, they're looking at all their clients as one unit. And we felt that we could both extract more value by giving them a model that works for all the clients as well as provide them incentive to bring on all the clients. One of the things that we have heard a lot was well I'm only going to put it in my high-risk stores. Now we've given them an incentive to bring everybody onboard across all their clients because they get hit by the fraud everywhere because it is a tiered structure and the more that they bring onboard, their marginal cost of reducing fraud goes down while our revenues go up.

Okay. Thank you. Well done on execution here.

Thanks Roger.

Thank you. At this time, I've come to the end of our question-and-answer session. I would like to turn the floor back to management for closing remarks.

I just want to say thank you everybody for attending the call. I'm very happy as I said with the performance of the team and its performance and I'm going to expect them to keep up. So have a good day everyone.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.