Greetings and welcome to the Intellicheck Fourth Quarter and Year-End 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Gar Jackson with Investor Relations. Thank you. Mr. Jackson, you may begin.

Thank you, operator. Good afternoon and thank you for joining us today for the Intellicheck fourth quarter and full year 2023 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, 2024. 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 and context for use of this term. We will begin today's call with Bryan Lewis, Intellicheck's CEO; and then Jeff Ishmael, Intellicheck's COO and CFO, who will discuss the Q4 and full year 2023 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 Bryan.

Thanks, Gar, and thank you all for joining us today for the Intellicheck Q4 2023 and fiscal year 2023 earnings call. One of the things Jeff and I have been emphasizing throughout previous calls and meetings is that we were going to end the year with adjusted EBITDA breakeven or better. I'm excited to point out that we delivered on that goal. For Q4, we achieved net income of positive $757,000, adjusted EBITDA of a positive $1.17 million and the adjusted EBITDA for the full 2023 year of a positive $377,000. Our gross profit margins continue to remain strong, running at 92% for the year. Given our growth expectations, we expect this trend will continue into 2024 and anticipate that we will also end 2024 adjusted EBITDA positive. Before I get into some of the wins for the fourth quarter and recap some highlights from 2023, I'm first going to share with you some of the substantive changes we have made to the organization. Driven by the changes we made in the engineering team, we reduced year-over-year IT costs by approximately 10%. At the same time, we have realized some significant upgrades to our software. We are now cloud-agnostic, which throughout 2024 will further reduce our cloud expenses as we move clients off of Azure. This improvement is an important milestone. Not only does it provide more security to data in transit, but it will essentially eliminate downtime as we are now active-active on parallel platforms. This is a noteworthy distinction because active-active means we have redundancy and can switch over immediately if the cloud provider has an issue. This advancement has also led to a complete rewrite of our API. This too is another distinctive step forward because it makes them much simpler to integrate. Anyone can go through…

Thank you, Bryan. I'm pleased with the continued progress we have been making across all levels of organization as we continue our efforts to recalibrate our spend and redistribute investment into the areas that will fuel our growth and profitability. Our fourth quarter revenues were 13.7% higher versus the prior year. We continue to report a higher average price per scan versus the prior year. And we now have achieved our committed goal of adjusted EBITDA-neutral results for the year, where we finished the year with a gain of $377,000 or $0.02 per share on an adjusted basis. As Bryan mentioned earlier, we are also pleased to see the continued trailing 12-month growth progression in SaaS revenues each month, which has been achieved consecutively for the last 4 years. Continuing to cast a critical eye to the metrics of our SaaS revenue, it's encouraging to see a 16% increase in our average price per scan versus the prior year as we have continued rightsizing the price of our legacy accounts and enforce internal disciplines on CPI increases. This is especially encouraging as it continues to speak to the testament of the value realized by our customers. We are also continuing to maintain our focus on our operating expenses to ensure that we achieve the expected return on our investments in this area. Within the Q4 period, we started to realize the benefits of our midyear restructuring efforts and the subsequent increase in our adjusted EBITDA. I will share more details after the summary of our fourth quarter results. We have also successfully launched our channel program, which I also will provide more details on later in the remarks. We expect this program to have a noticeable impact on our 2024 pipeline growth and bookings and to be an important driver…

Thanks, Jeff. As I mentioned in my prepared remarks, we have a lot of activity in the pipeline with a number of deals going live in Q2 and Q3 that we believe will drive significant revenue growth in the back half of the year. Like I've always said, larger deals take longer to close and longer for the implementation. We are on the cusp of the number of sizable revenue generators that we believe will really move the needle in the back half of the year. These include the new retailers with our long-standing bank partners, additional bank use cases, global media companies, autos, title and now cryptocurrency, our latest vertical. As it stands today, we've seen year-over-year declines in scanning volumes in the first quarter at our retail partners that we believe is driven by some of our larger clients reducing door counts and weaker store traffic in general. Additionally, as I mentioned in my prepared remarks, we have had longer than originally anticipated implementation times to onboard larger customers, for example, the 2 regional banks that are now live. As it stands today, we anticipate Q1 revenues in the range of $4.3 million to $4.4 million with year-over-year growth accelerating sequentially throughout the remainder of the year. With the new hires we have in place, our pipeline and our gross margin and expense structures, we believe that we are well positioned for accelerated growth and to be adjusted EBITDA positive in 2024. I will now turn the call over to the operator to take your questions.

[Operator Instructions] Our first question comes from the line of Mike Grondahl with Northland Securities.

Bryan, could you talk about pricing kind of overall? I think at one point, like a 16% increase in average pricing per scan was maybe called out. I'm just kind of curious, like are you seeing pricing pressure, pricing power? Trying to understand that a little bit. And then if you could segue into transaction, I think you talked about -- I don't know if you just meant at the big retailers like down 15%. Or kind of what overall are you seeing that with transaction trends amongst all?

Okay. So in terms of pricing, the only time that we see pricing pressure, I'd say, is if we're looking at bringing on people in the age-restricted space. And I think there's a lot of people that want to sell into there. And I also think that there's a lot of places that don't really want something as accurate as we are. Because when you're as accurate as us, you're cutting your revenue. Where we always win and certainly have pricing power is where it hurts our client financially if somebody gets through and commits identity theft. So overall, I'd say that in our -- in the core markets where people really care, title and auto and banking and all those things and even crypto because you get crypto while empty, you're kind of in trouble. So where it really matters that you catch the bad guys, we have pricing power in, again, some of the age-restricted spaces. When to walk away from the business? Is it really worth it for what some people are willing to do it, but the systems just don't work. And I think at the end of the day, they're going to get caught, they're going to get fined. So they'll probably come back to us. In terms of -- I think you're asking, Mike, overall, what are we seeing in transactions. Transaction volumes continue to go up in areas other than retail. I'm looking at some of the numbers now. And if I compare this year to -- Q4 this year to Q4 last year, I'm looking at some of our very large retailers down anywhere between 15% to 25% in terms of their transaction volumes. So everything that I'm reading, we've got retailers shutting down 150 stores. People are talking about credit cards getting maxed or people worried about the interest rates. So I think that that's one of the reasons that we really made sure that we were diversifying and getting into other markets that really aren't dependent on a transaction. If you need to reach or e-mail or something, it's really important. You have to do it. Those aren't subject to economic conditions, and we're making sure that we're getting into more and more businesses like that.

Got it. And then, I don't know, can you call out maybe 2 new wins that really help you in the back half of '24? And trying to kind of understand the statement in the press release, some sizable revenue growth, some wins that will really move the needle. Trying to figure out which ones we need to track closely.

I think that these automotive partnerships are very important to us, certainly getting 2,600 locations with guaranteed volumes, minimums. I look at -- but I think that really could be -- certainly should be much higher. I think getting into the other use cases at the regional banks could be significant revenue. It could be the True Age and their partnership with MAX could be significant revenue to the back half of the year. So I think it's a combination of a lot of things. Some of the things that we're working on with the retailers could really help us blow up at the back end of the year, some of the pilots that we've been working with, with some large organizations. And again, just the larger it is, the longer it takes is -- the amount of people that have to give their stamp of approval -- it seems everywhere we go, the business people like I wanted yesterday. And rightly so, DevOps and InfoSec are making sure that everything about us is safe so that they don't get hacked. And it just always takes longer than we would hope and certainly longer than their business folks would hope. So I think it's a combination of some of the deals that we signed and then some of the pilots that we have in place really hitting the afterwards.

Got it. And then just lastly, retail customers' transactions, what percent roughly of revenue are they still?

They're still the majority, upwards of -- Jeff might have better numbers off the top of his head. But I'm going to say there's still up there, if I look at financial services. And again, number four, everything comes through one fee, so it's hard to break it out. But the financial service is making that they're doing probably about 95%. But a greater percentage of financial services overall is also becoming banking, just regular banking transactions. And again, something that certainly is not so much economic-dependent. It's just that certainly, some of our largest retailers were a significant volume of transactions. But again, they're hitting headwinds, and that will hit us and again why we're focusing so much on diversifying.

Our next question comes from the line of Scott Buck with H.C. Wainwright.

Bryan, I was hoping you could give -- just following up here a little bit on the pricing. I was hoping you could give a little color on $0.75 million of auto transactions look similar pricing-wise to $0.75 million card-not-present? Or do you charge a material difference between customers of that nature?

It's -- what we're looking at more -- the only time there's really a difference in pricing is age-restricted versus kind of everything else. So the transaction for an auto dealer, it's going to be -- if they're doing volume like that, they're going to be almost like a retailer who is doing a card-not-present transaction. What I certainly will say is we continue to raise pricing. I think Jeff said in his remarks, we were up about 16% overall for the year. That includes every deal that we have been closing. So we are always doing a combination of we're pushing the pricing because we know and we see how much we're saving for people. And you get enough auto dealers and you can realize, wow, we did that for them. We're going to raise the price for everybody else. And that's what we've done.

Great. That's helpful. And then I wanted to ask about the balance between profitability and revenue growth. It sounds like '24, we're going to see EBITDA margins improve a little bit. But you're certainly not taking the foot off the gas here on growth, right?

No, no, no. Not at all. I think we are running as hard and fast as we can for growth. And at the same time, a lot as Jeff has been able to bring a financial diligence that really didn't exist before and put all the systems in place. So I think we've got a better picture of where and how we're spending money and we can sort of quickly move it to the things that we think are going to accelerate growth. And certainly, that -- it was the marketing, the branding and the channel program and then making sure also we have the right salespeople, which I really believe we finally have the right team in place. So growth is what we are going for. We are all tied to revenue from the most recent employees in the company to me. All we care about is making sure that we're growing the revenue, while we've got Jeff in the corner over there, making sure we're not spending a ton of money and blowing markets. So growth in where we --

Go ahead, Jeff.

No, I was going to say, we're definitely cognizant of how we're deploying that spend. I mean one of the things I watch is I look at our employee count, and we're looking at moving towards 52 people. I mean we've got a very high revenue per employee. And I'm cognizant of that because what we don't want to do is overheat the team either. So as Jonathan works on his re-architecture efforts, it's like don't think that your research-constrained. If you have a compelling case and you need more spend, to communicate that will work across the entire team. As parcels out all of these marketing relations, all of the trade shows that we're going to be attending conferences. Hey, let's balance our needs on those, what's going to be effective. These are all new, but let's work as a team. So there's really not a red limiter in place, but we're making sure that we stay in the guardrails of achieving those committed EBITDA levels publicly.

Great. That's helpful. And then last one for me. In terms of capital allocation, as the business starts to generate more cash internally, how are you thinking about uses of that cash? Could we see an aggressive share repurchase with the stock --

Look, I'd say that kind of everything's on the table. We're always going to look at what we think brings the most shareholder value. And that could be everything from a stock repurchase to is there a small little tuck-in company with really full technology that makes sense to add into our portfolio. So -- and a lot of cool start-ups and other things come across our door, where they all know we've got something very interesting, but it's used us without a really, really accurate first step. So we're always looking. And it would -- again, what makes the most sense for the future growth of Intellicheck and also for the shareholders.

Great. Appreciate all the added detail in the prepared remarks today.

Great. Thanks, Scott.

Our next question comes from the line of Rudy Kessinger with D.A. Davidson.

I guess, Bryan or Jeff, if you had to take a slide, I got it kind of going back to my cost question. Of the 95% that's coming from financial services is it's -- I know there's some mess in this data you gave, but is like 2/3 of that coming from retail? Is it 3/4? Is it 1/2? Like is there any kind of bounce you put around it?

It's going to be a significant portion of it, 75% to 80%, probably in that range. It's going down every quarter as we add more pure banks. And then also as the banks that we have add more banking use cases. So it continues to move down.

Yes. Okay. And then as far as -- you said you saw some margin in past 15% to 25% decline in Q4. What have you seen quarter-to-date? I know you said down year-over-year quarter to-date in Q1, but like what level of decline? Has it gotten worse throughout Q1? Or is it --

I think Q1, I think -- and that's part of the reason, and I think what we're seeing in Q1. I've been looking at the numbers I was trying just fall. We've got some down upwards of 27%. The large guys are basically down anywhere between 18% and 27%.

Okay. So a bit worse thus far in Q1 than Q4?

I'm comparing -- yes, so I can do apples-to-apples because we always see a decline in retail in Q1 just because the holiday shopping, and everybody is like not spending a lot of money. But -- so comparing to the first 2 months of this year versus 2 months of last year, and that's what those numbers are.

Okay. And then, I guess, I want to be clear, one thing that you said you do expect growth to accelerate sequentially throughout the year. And so does that mean improving year-over-year growth in Q2 versus Q1, Q3 versus Q2, so on and so forth? And could you just maybe -- some of these new wins, are these all kind of 6-figure-a-year revenue opportunities? Is the big 3 banks just the initial use cases? Like is that -- does that push them into a 7-figure-a-year customer like the other large banks that you have? I mean, just what -- and where should growth accelerate to by the end of the year?

Look, I think that looking at that large bank, this should be just like all of our other large banks because there's the same use cases, the same need. It's just a matter of how fast do they get up and running. And again, they're going to start with everything digital and their mobile apps and then roll everything into in branch in 2025. I think one of the things that we're doing as part of our strategy is not chasing the whales is something we're always seeing, and they take a really, really long time. But we're also through our channel partners. And also, now with the simplicity of our tools to be able to integrate them, particularly in the digital world, we're certainly making sure the sales team has gone after the singles and doubles as well. So I expect to see that we'll bring in $50,000 to $75,000 kind of deals with more frequency because they're easy to bring up, while at the same time, continuing to grow the existing clients, adding some of the folks that should be 7-figure kind of deals. So a combination of things that we're hoping for brings in a way less lumpiness to the revenue growth, make sure that we continue to land the big giant deals that are, I think, really important and prove how good we are, and at the same time, making sure the sales guys are bringing in stuff so that they make commissions and they're happy and they stay. So that's the whole point of getting the marketing right, the messaging right, more people to know who we are because I still say it, people think that everybody is the same doing ID validation, and we're not. And when they see how different we are, things move quickly. Always from the business side, we still have to go through all the InfoSec and those types of things. But it moves quickly when people realize what we can do that really nobody else can do, in our opinion, and they want us. So I think a combination of things are going to put us all across the board this year and the size of the deals that we're bringing in. It used to be very big and sort of very small. Now we're making sure that we get that mid-range as well.

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

Several here, maybe one to follow on Rudy there. In terms of the new signings, maybe you could just give us a swag of the ACV of contracts that are signed but not yet implemented as of Q4. Even a ballpark, put them all together, the majors that you mentioned, putting aside any churn or anything else, just the incremental value of the signs that you have in hand in ink. Can you give us a ballpark of that?

What I'd be worried about is giving a number without having a better idea of whether they're going to go live because that seems to impact things. We certainly plan on giving -- so 2024 guidance on our next call is where we kind of expect to end out the year. So what I would say is I am very comfortable with what the ACV that I've seen just -- and I'll also say that my sales team only seems to sell smaller buckets to people that become very much bigger buckets. So it's always, in my mind, an underestimation of what the ACV could really be. I'm comfortable with it in terms of what it means for growth for the year and where people -- where consensus has some things. I'm very happy and comfortable with what I have seen signed and what I expect to be signed.

Okay. Got it. And then maybe back to the scan reductions of 15% to 25% and then maybe accelerating a bit. How do you think about '24? And what do you anticipate in terms of scan volume trends? And maybe just a little bit about what's going on in those retailers. Not a lot of retail -- well, there are some, but I mean, as a group, certainly not putting down 20% on the revenue line. So maybe you can parse that just a little bit. How much of that is due to your retailers closing doors versus just reduced economic activity versus potentially just people somehow finding a way around your solutions? Just maybe parse that to the dry you can and how you think about it.

If I'm looking at the stores that are down -- the retailers that are down the most, they're the ones that you're reading about because either they sort of lost their branding and people maybe didn't want to -- it just didn't make sense to them anymore or they're shutting down their stores and then looking at that. So what I'm seeing where they're down is mostly -- those large amounts is mostly those types of things. I think, again, retailers that kind of lost their way that we've all been reading about for a while. If I look across the rest of them, there are certain stores I think that have it right, and they're up but they're smaller. So their up doesn't offset the down. But overall, looking at it, we take the big guys out, people are fairly neutral or slightly up. So anywhere from 95% to 102% of where they were this time last year. So I think that there is definitely some folks who are thinking about, hey, should I be spending money now as well as -- I think that's what we're seeing partially, but I think a lot of it is really just retailers who lost their way.

Yes, yes. I mean you're giving thought to obviously the annual guide. I mean, how do you tackle that? How do you think about retail scans for '24 at this point?

Look, I think that if this trend continues, I don't see it diving much more values. And it could be that people spend a lot of money, who knows, on Christmas this year and holidays, and they're now sitting back for a while. I don't let something really crazy happens in the economy. Everything I'm reading is saying, retail is slightly off, but they don't expect it to take a header. So I don't see it getting much worse than where we are now. And if anything, potentially approving once we get out of Q1, and maybe people start to think about spending money more.

Got it. And Jeff, the RPOs, I know it's in the Qs and Ks. I don't know if you have that handy.

I don't -- not in front of me, Scott.

Jeff, but that's all right.

I'm sorry. Yes, I'm sorry. No, I don't -- actually, that's probably the one piece of data I don't have in front of me, but I'll make sure I have that prepared on next call.

We've reached the end of our question-and-answer session. And with that, I would like to turn the floor back over to Mr. Bryan Lewis for closing comments.

Thank you, operator. So I'd say in closing, 2023 was a year of change in growth for us. Everything from a new CTO, new channel partner program, new Vice President of Marketing. What I'm happy about is we continue to build the strength of our organization. And I think the changes that we have made, you can see it already have an impact on cost productivity and new sales to be implemented in this year. And as I told everybody before, we're continually analyzing our performance, and we don't hesitate to make changes where we think it will accelerate growth or reduce costs. Caring for the bottom line requires that we constantly raise the bar against we measure ourselves in our progress, which we do. And if everybody asks, are you satisfied with where you are and I would say, no, but I am a pragmatist. I understand that the large deals and the organizations that we deal with that can benefit so much from our services, has multiple structural channels that we have to get through before they can integrate a new process and service. So while -- and we totally wish that there are ways to streamline the implementation, and we work with our clients to do that. We recognize that it might take a while but these partnerships that these… [Technical Difficulty]

Ladies and gentlemen, please stand by. Thank you, ladies and gentlemen, for standing by. Mr. Lewis, please continue.

Well, sorry about that for everybody. Got to love it when your call says, call failed. So just to end, when I say these big deals take a long time, they also have a lot of value and a lot of long-term benefits. So we feel that they're worth it, also while we changed the business model and make sure we also get every single and double out there. So again, my thanks for joining us today. We really anticipate more good news to come, and we look forward to sharing with it all with you. So have an excellent night.

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