Greetings, and welcome to Intellicheck Fourth Quarter and Year-End 2018 Earnings Call. At this time, all participants are in listen-only mode. A brief Q&A session will follow the formal presentation. [Operator Instructions] As a reminder, this program is being recorded. It is now my pleasure to introduce your host, Gar Jackson of Investor Relations. Thank you, you may begin.

Thank you, operator. Good afternoon, and thank you for joining us today for the Intellicheck fourth quarter and year-end 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, March 21, 2019. 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; followed by Bill White, Intellicheck's Chief Financial Officer, who will discuss the Q4 and full-year results. Following their prepared remarks, we will take questions from our analysts and institutional investors. Today's call will be limited to one hour. And I will now turn the call over to Bryan.

Thank you, Gar, and good afternoon everyone and thank you for joining us for the Q4 2018 Intellicheck’s earnings call. My first earnings call as CEO of Intellicheck was one day shy of a year ago. And I am very pleased with the changes and progress we've made over the past year. As I said on the last call, the increases in identity theft and the under-age getting access to age-restricted products, and the need to increase officer effectiveness and safety is fueling the realization that authenticating a government issued ID is the most effective way to solve each of these issues. I would like to start with some general comments about our group. I believe the changes we have put in place over the past year are beginning to bear fruit. Quarter-over-quarter SaaS revenue grew by 45%, and it was the first quarter since Q1 2017 where losses were below $1 million. We’ve re-engaged with existing clients and signed a new large bank, and I'm excited to say that other major banks are now reaching out to us. Credit card issuers, who hadn't returned calls are now coming up to us saying XYZ Bank told us about the great things you're doing for them, so we have to speak. And this is just one sector in which identity authentication is becoming a must have. I've been saying that it appears that market is coming our way and I’d also say that the evidence is bearing that out both in terms of clients and prospects and also the continued level of breaches and identity thefts. I would like to remind everyone of the magnitude of the problem that outline the addressable market. I will start with the consumer space, specifically retail, which we still believe has the most immediate revenue…

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 Form 10-Q and press release for the fourth quarter and fiscal year ended December 31, 2018 that we released and filed with the SEC a short while ago. I'll begin with our fourth quarter results. Revenue for the fourth quarter ended December 31, 2018 grew 37% to 1,330,000 verses 968,000 for the same period last year. Our SaaS revenue was approximately 826,000 for Q4 2018, a 45% increase from 569,000 in Q4 2017 and was a 27% sequential increase versus approximately 651,000 in Q3 2018. Gross profit as a percentage of revenue improved to 93.1% for the quarter ended December 31, 2018 compared to 89.4% for the quarter ended December 31, 2017. Operating expenses consist of selling, general and administrative and research and development expenses. Including the impairment charge, CEO severance expense, OpEx was flat at slightly over 1.9 million for both the three months ended December 31, 2018 and December 31, 2017. The company posted a net loss of 664,000 for the three months ended December 31, 2018 compared to a net loss of 2.9 million for the quarter ending December 31, 2017. The net loss per diluted share was $0.04 versus $0.19 in the prior year. Adjusted EBITDA for the quarter ending December 31, 2018, which excludes the one-time impairment charge, was a negative 633,000 compared to a negative 1.3 million in the quarter ended December 31, 2017. Now, turning to our full year 2018 results. Revenue for the full year ended December 31, 2018 was up 23% to 4.43 million compared to 3.6 million for the prior year. Our SaaS revenue for calendar 2018 was 2.66 million, an increase of…

[Operator Instructions] Our first question comes from the line of Mike Pochucha with Northland Capital Markets. Q –Mike Pochucha: Thanks for taking our questions and congrats on the quarter. Maybe first off, just on that top five bank, is that still four retailers that we're looking at or is that or does that number go up since the last quarter.

That's still the initial, and thanks Mike for the compliment. That’s still the initial retailers that they're looking to bring up, the ones that I think, they look at doing the most scans, probably also creates the most losses. But they are -- we're talking to them about their entire portfolio.

Got you, and then on inlets, I might have missed it, but is that still live at six states, or how's that progressing?

Yeah, the inlets is still live at six states, so we're going in and we're hitting those states very hard to make sure that we've got everything that we need to be the product that the police want to put out to their officers. And the reason we're doing that is there's additional fees and costs for each inlet state that we bring up. So we want to make sure that we've got a lot of demand in a state, potential demand from prospects before we go live with an inlets connection.

And then just on, maybe headcount and expense, is that something we can see building a little bit over the year? Is that specific to a certain quarter when that starts ramping a little bit?

Yeah, we've added some people already, and we're going to watch it based on the demand in terms of on-boarding our clients. One of the things I talked about a little bit in the past is building out an implementation team to make sure that we have the people in house so that when our retailers bring us, I'm sorry, when our banks bring us to retailers, we've got the bandwidth to speak to them, walk them through the implementation, and get them up as quickly as possible. Because what I have my people targeting is, how can we move up every implementation by a month, and that has significant impact.

Our next question comes from the line of Shaul Eyal from Oppenheimer and Company.

This is actually Yi Fu Lee for Shaul, and congrats on the quarter’s performance. First question is for Bryan. In terms of the law enforcement client opportunity, can you give us a little more color on the total addressable market size, and how much do you think that Intellicheck could capture?

Well, I think that the market, if you look at who could use the product, the main targets that makes sense to me are officers who are not in a police cruiser. The theme is, no laptop, no car, no problem. Because what we can provide is something that gives the officer who is on a bike, a motorcycle, a horse, or on foot the same capability that an officer in a cruiser has to enter information and get back wants and warrants on a person without having to go through dispatch, which frees dispatch up to handle more urgent safety calls. So the market is large, like I said, I just gave an example of New York, but you look at any state, there are a number, in any state, there are multiple agencies, and almost everybody has -- somebody who is not in a police cruiser, whether it's a detective or a special Agent type thing, so they are all the people that we can sell to. When we look at selling to law enforcement for Age ID, that drastically opens up who we can initially sell to and then help us gauge demand for a full blown Law ID product, because there aren't the requirements of having a phone issued by the agency that has a mobile device manager on it with special training for the officers that makes them CJIS qualified. So that market is immediately much larger. So we're looking at it right now as we've got a nationwide market with two different products, and we're attacking it, I think, in a logical manner to get more police departments online and then have them help us make sure that we have the Law ID product, built to the point that it makes a lot of sense for them to issue it department wide. So the market is very, very big. Is it going to be more Age ID than Law ID in the short term? I would say yes. But it's much easier for us to deploy Age ID than Law ID.

Okay. And Bryan, in terms of like the sales cycle, can you give us a little more color, I know you are in process of closing one deal. Can you give us a little color on like, I guess, the magnitude of it as well as the sales cycle? Will it take like six months, nine months to close, how long is the sales cycle?

For Age and for Law ID?

For Age and Law, maybe.

Age ID tends to be much quicker, because there are not a lot of hurdles that the department has to go through to get the product in the hands of the officers. Again, that's because the information is different. There's no wants or warrants returned on Age ID, which means the police officer does not have to have a CJIS certification. And because there's really no information that can get stored on or that could be accessed from that device, it doesn't require a mobile device manager to allow them to remotely wipe the device should it be lost or stolen. So that can be really a matter of, it can be just a couple of weeks. Age ID, I'm sorry, Law ID, they generally want to get in the hands of multiple officers and have, at a minimum of 30 day pilot generally longer, and then it needs to go into a purchase order process, which tends to be a lot longer than Age ID because the contract is different. And again, the legal ramifications of having that product in the hands of the officer are different for the agency than they are for Age ID.

Okay, thank you. And sorry, one last follow-up for Bill on the financial side is, you talked about expanding the sales force in IT, in terms of like, maybe give us a little color on the operating margin headwind in terms of this expansion. And also Bill, can you give us a little more color on like the nice improvements on the gross margin we’ve seen this quarter to 91% as well.

Yeah, sure. Thank you. I’ve said historically that our margins should normalize in the 85% range. We've been running a little above that. I think, well, I think you'll see margins normalize in the 85 to 90% range. We just happened to be a little higher now because of product mix.

And in terms of, sorry, the sales force as well as the IT additions that you intend to put on this year. Can you give us a little more color on the operating margin pressure, if any?

I don't think there will be significant pressure on the operating margins. We’ll add -- we're very cost conscious and we'll add employees, as we need to as we're bringing on these customers and need implementation teams and more developers are increasing the velocity of development when needed. But that will be as needed.

Thank you. Our next question comes from the line of Roger Liddell for Clear Harbor Asset Management.

Several questions on the Age ID side. Bryan, you cited and I think I recall, it was a college town that had a 99% accuracy [indiscernible] but then you said verses 16% for the other flavor, the other incumbent systems. 16% effectively means there was no control whatsoever and I'm [indiscernible]. Isn't that number itself a major in this more focused -- focus of attention on under age issues with vaping being a driver, but isn't a 16 rate just an admission of failure?

In my opinion, I would say, yes, and it's one of the things, in particular, town mandated that people have a device. And I think it's another example where, I'm working with lot of government agencies to make sure they understand the difference between scanning and authentication. And you can get a scan or you can download a scanner for free online. But that doesn't mean that it's going to authenticate it. The bad guys know how to create these IDs. They advertise it on their websites that it will pass the scanning test. And it just shows that this is an example where the law has not kept up with technology, saying that you need to visually inspect a license does not work, saying that you need to scan a license does not work. What you need to do is make sure that you can say that this license with 100% certainty, the barcode on it matches the jurisdiction’s actual barcode. And that's why I would say, yeah, I think 60%, you almost might as well not be doing anything. And, that's why I think that police departments or the bars switch what you're doing, because you were -- you probably try to do the right thing, you maybe save a few bucks doing it, but you are not doing what it is we intend you to do.

Following that thread, the FDA meeting that you referred to and Walgreens, well, Commissioner, FDA Commissioner, Gottlieb is leaving and if he was the driver behind this vaping issue, then I have no idea whether this thing goes right into a ditch? Can you comment usefully on that? And what is the FDA actually doing or threatening to do? What will they actually do?

So we’ve met with them several times and have done a lot to educate them on the difference between again visual inspection and scanning. The FDA pays for the whole We Card program where they train people on how to supposedly visually tell a license is real or not. And after we went down there with a bunch of fakes and showed them the fakes and asked them if they could visually tell and then showed them the difference between scanning and authentication by using one of these free downloads versus our Age ID product, I think they realized that what they were doing as well off the market. They have some guidelines out that they are in a middle of a comment period, comment period closes on April 15. We will be commenting on that, to tell them, our take is that this is an opportunity where they could have the guidelines, which hopefully will then impact the law, start moving towards something where the law understands what technology is capable of doing and demand authentication process, not just the visual inspection or scanning process. From everything they have told us, his stepping down is not changing their zeal in curbing this epidemic. And I would also say that, again, dealing with SFATA and the New York Vaping Association, they are all also very adamant on the fact that they want to keep to used at doing this, they look at their products as something that can get them off of burning tobacco, which they feel is what really causes cancer and they think their products have a real health use, although I don't know they would ever say, they’d advertise any health aspect, but they think it's something that can get people off of cancer causing tobacco use.

Okay. Continuing with the vaping theme, I noticed in the announcement of an upcoming IPO for a company that, I’m quoting here, sells vaping products and accessories to over 6600 independent smoke shops, regional stores and a number of licensed cannabis cultivators, processors and dispensaries. It also runs two online stores in North America, which sell directly to consumers. The take away point to me is 6600 independent smoke shops, et cetera. That's a bigger number than I would have thought. Can you give me a sense of a scope of the Smoke Free Trade Association? And is the 6600 location number, does it correlate at all with what you know about the SFATA membership?

The number from, between SFATA and the New York Vaping Association is much larger than that. One of the things is many of these vaping shops make their own products and mix and do. So there are -- this is just, I think, this is just one provider of raw materials to the vaping shops. So the addressable market, although I don't have it right in front of me, I don't happen to have the membership list for either of them, but I know it is much larger than that.

Our next question comes from the line of Ashok Kumar from ThinkEquity.

Just a big picture question, Bill in terms of the bond rate, do you expect it to remain at record levels of the 350 a month, which was the average level in 2018. And the timeline to profitability, you’re maintaining discipline on the operating structure with about 8 million in annualized operating expenses and 80% to 90% operating margin, would the 9 million to 10 million be the new revenue level where you reach operation breakeven, and do you have a timeline for that?

Yeah, Ashok. We've said that we're not planning on raising working capital for working capital purposes, which would mean that we expect to reach EBITDA positive before having to raise capital. And with respect to timing, we haven't said when we expect to reach EBITDA positive at this point.

[Operator Instructions] Our next question comes from the line of Amy Norflus from Neuberger Berman.

Yeah. Hi. It was a really great quarter and there seems to be lots of amazing opportunities. I know like you just said, you really don't give revenue guidance, but can you kind of help us understand what we should expect, when some of these opportunities should turn into realities, revenue growth rates, quantify anything.

What we have said is that we look at – you look at national retailer and we figure each one of those should be worth when they're fully live between $800,000 and $1.2 million a year in revenue to. So, depending on their scan volumes and all those types of things, so it's one of the reasons, we talk about the number of retailers we expect to bring up, timing of that is very important, but one of the reasons why we're dealing with the banks to help us push through to the retailers, the banks have an incentive, the retailers also have an incentive, not as great as the banks, but it is working. We have more retailers that we are working with than certainly have since I started in probably the years previous to that. The message is resonating –

How many retailers are there? I’m sorry, how many retailers?

Right now, we've got 16 in the pipeline in various stages of implementation.

And do you consider bank retailer or how – so when you give us those numbers? I'm sorry, I was just looking for to understand that?

Yeah. I said, we're dealing with four banks who have 16 retailers that they are bringing to us to onboard. In addition, two of the banks are also piloting with their own brand name cards.

And would a brand name card be equivalent to, if two brand name cards, that would be equivalent to two retailers?

It depends on how many cards that particular bank issues in their own name. But I'd say at a minimum, yes.

And can you kind of give us the same thing with the Age ID and the Law ID, how we should look at the revenue trends from those.

I think that Law ID is going to be as I said, it's going to take longer than we anticipated, maybe in the beginning, I think that the product, again, the feedback from officers who are using it is very, very positive. Again, though, it needs to be at a police department that is issuing telephones to their officers, as opposed to, they can go out and get a phone from anywhere to use Age ID, a phone used for Law ID has to be a Department issued phone with an MDM. There are a growing number of law enforcement agencies that are issuing phones to their officers. But that limits what we can, who we can sell to, which is why, while that part of the market is growing, we're focusing heavily on Age ID to law enforcement everywhere.

On Age ID?

I'm not sure I understand the question. What do you wanted about Age?

Just trying to quantify some I mean, like I've been reading all the press releases of -- you’re partnering with these people, you're partnering this working with a lot of different people. Has any of that produced revenue, when should it produce revenue? Just trying to understand?

Yeah, I think it's one of the reasons that in Q2, in the second half of last year, we more than doubled the sales of Age ID that we did in the first half of the year. And I would expect that we will continue to see increased sales in Age ID. Again, it's predicated on, the law right now states that all I have to do is visually inspect an ID. And I'm clear, so as pressure grows on people to be more socially responsible, as states and towns are starting to now think about passing laws to either completely ban the sale of certain products or certainly restrict the age, increase it to 21, they've got real incentive to make sure that they are doing a socially responsible thing. So, more and more people are coming to us. And the other thing too is more often they get busted by police department using Age ID, the more likely they are to buy. We can usually tell when somebody use – a law enforcement agency using our product has gone out and done its thing and hit bar row in a particular town because we can map out who got busted, because it's one main street, 12 Main Street, 37 Main Street, suddenly are calling us up, asking about the product.

And if I could, just one more on the Retail ID, so the 16 retailers that we have in the pipeline at various stages, is there anybody that's 100% already in there or the 16 will just roll in over a 2, 3, 4 year period? Or how do I think about that?

It’s not a 2, 3 or 4 month period. It's a matter of the implementation process, depending on the IT resources available to the retailer to integrate into the point of sale system. We've got retailers who have done it in a matter of weeks and sometime, it has taken them three or four months. So it's whatever stage of roll out, where their resources are in. So, we have, in this quarter, we brought up -- just brought live the rollout for a national home merchandise retailer with 1100 stores, we've got it smaller, national specialty retailer that's working out, and we expect, we've got our pipeline of where we stand and a development too, as we have our partnership meetings with the banks and their clients to help them with the rollout. We've got a timeframe and target dates for each of those 16. And we are tracking through those dates.

So if I understood you, the 16 is not years, it's months?

It’s 16 retailers, specific different individual retailers.

Correct. But the resources that they have internally to integrate into their POS system, originally I thought it took a few years until you got everything to work into a POS system. But if I heard you said, it's not going to take years, it would be shorter than that.

Generally, the way that a retailer rolls it out, they need to do the work to make sure that they can send us the barcode properly and then can understand the message we send back about that particular barcode, and then whatever the work they need to do to make sure they've got the credit process going properly back and forth with their bank, based on the validation authentication of the ID that we send to them in the bank. They get that done. They generally will roll it out to a few of their locations in different parts of the country to make sure that they've got all the kinks rolled out. They generally do that for about a month or so to make sure it's all working right. And then they light up all their stores nationwide.

Thank you. Our next question is a follow up from the line of Roger Liddell from Clear Harbor Asset Management.

Continuing on the theme of enrollment periods and you need for large complex retailers, on-boarding team and the longer timeframes. Do you have any plans to have for mom and pop or smaller retailers a self enrollment kind of software, so you don't need those assets and onboarding team tied up to implement?

Yeah, absolutely, Roger. One of the things we're doing is we have moved, I guess, two things to explain. Most of our products had been in the Apple B2B store, which is a lot more complicated for a merchant to download. They need to have something called a volume purchasing plan number and some other things that many of them don't have. We're moving or have moved our products into the regular Apple store because we were able to put a lot more controls on who can download and access to the system and other things. So we felt comfortable putting it in a public store. That means if a mom and pop store wants to be able to check and authenticate an ID before they fill out the application, they will be able to download the product onto their smartphone or tablet and use the product. And I think it's important for them because generally, those small stores, the credit card it's going to be issued is in the bank's name, right. It's not like, I open up local jewelry store and Bryan's jewelry. I'm not going to get a white labeled card. I'm going to get one from a bank that's going to back me, but I eat 100% of the fraud. So it is a very easy trade off for them to say the cost of the product certainly outweighs any of the losses that I would get. And yes, we will, in short order, have it very easy for them to self enroll.

A final question, you gave the figure of, if I wrote it down right, 6.94% fraud prevention rate using law enforcement or Law ID versus 2.67 for retailers generally. Is that discrepancy enough to -- is it relevant to driving faster implementation or is that a nice to have, it’s a tailwind, but not relevant?

Okay, just so -- just to make sure that I clarify a few things there. The 6.94 is the fraudulent rate that we see when law enforcement goes out and does a scan authentication of a driver's license using Age ID. By law, we at Intellicheck cannot see anything that is done when an officer scans an ID using Law ID. We are not CJIS certified. We are not sworn law enforcement officers. All of that happens in the inlets cloud, we see none of it. So that number was purely Age ID used by law enforcement. And, I'm comparing there what happens with when a retailer scans and they don't scan everybody. When they do a raid on an establishment, particularly for alcohol, the cops go in and they shut all the entrances and they shut down the bar, and they check every single person's ID. So I think a lot of times, when somebody thinks, oh, they're close enough, they're 25, they look like they're 21, but they’re really only 20, they don't card them, whereas the law enforcement cards everybody. So that's why I think, it's, you see a much higher rate. I think that 6.94 is much more indicative of the amount of false IDs used by people, under aged people to get age restricted products. And I do think it's a very good selling clients, when talking to the retailers about why they need to put in a product because their people are not that good at checking who is real and not for two reasons. One, I can't tell the difference between somebody who's 19 and 21. And two, I could not tell you, what my neighboring state’s driver's license looks like. So how am I going to tell if it's real or not, which I think all points to the reason why, as I said before, the law has got to catch up with technology and the law needs to require authentication.

Thank you. Ladies and gentlemen, we have no further questions in queue. I'd like to turn the floor back over to management for closing.

I just wanted to say thank you everyone for attending the call. Thank you very much for your questions. Specifically, thank you for the compliments we got. I think we're on the right track. I'm looking forward to these calls throughout the year and I hope to enjoy our next call as much as I did this one. So thank you very much.

Thank you. Ladies and gentlemen, this does conclude the teleconference for today. You may now disconnect your line at this time. Thank you for your participation and have a wonderful day.