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Edited Transcript of IDN earnings conference call or presentation 14-May-18 8:30pm GMT

Q1 2018 Intellicheck Inc Earnings Call

PORT TOWNSEND May 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Intellicheck Inc earnings conference call or presentation Monday, May 14, 2018 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Billy Joe White

Intellicheck, Inc. - CFO, Treasurer & Secretary

* Bryan Lewis

Intellicheck, Inc. - CEO & President

* Gar Jackson

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Conference Call Participants

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* Donald Roger Brooke Liddell

Clear Harbor Asset Management, LLC - Managing Member, Investment Manager and Vice-Chairman

* Michael John Grondahl

Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst

* Tanner Edward Hoban

Oppenheimer & Co. Inc., Research Division - Associate

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Presentation

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Operator [1]

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Greetings, and welcome to the Intellicheck First Quarter 2018 Earnings Conference Call. (Operator Instructions) .

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.

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Gar Jackson, [2]

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Thank you, operator, and good afternoon, and thank you for joining us today for the Intellicheck first 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, except, anticipate and courage and similar expressions as they relate 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, May 14, 2018.

The management will also use the financial term adjusted EBITDA in today's call. Please refer to the company's press release issued this afternoon for further information, definition, reconciliation and context for the use of this term.

We will begin today's call with Bryan Lewis, Intellicheck's recently appointed Chief Executive Officer; and then Bill White, Intellicheck's Chief Executive Officer, who will discuss the Q1 financials.

Following the prepared remarks, we will take questions from our analysts and institutional investors.

Today's call will be limited to 1 hour. I will now turn the call over to Bryan.

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Bryan Lewis, Intellicheck, Inc. - CEO & President [3]

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Thank you, Gar. I would like to thank you all for joining us today, which marks my 82nd day on the job and second earnings call as CEO of Intellicheck.

I would like to start my remarks by saying that it has been a fantastic 82 days, and that I am even more excited that I was chosen to lead the company today than I was on day 1.

Let me explain to you the reasons for that. As I said on our call in March, my main attraction to Intellicheck was the technology and the people here at Intellicheck who created it.

We have a phenomenal core technology that has broad applications and a very large addressable market.

The only change in my opinion since then is that I was shortsighted on how broad the applications are and how large the addressable market is for Intellicheck.

Our core technology of authenticating a government issued ID is quickly becoming the most vital step in combating fraud in credit applications and in areas I had not conceived of.

Let me talk about that in context of the 2 verticals we sell into. The consumer transaction space and the law space. Let's start with the consumer transaction space, specifically retail. One must only read in the news, on any given day, you'll see an article or researcher board detailing how identity theft and the creation of its synthetic identities is costing billions of dollars a year and is taking countless others to victims to clear their records.

This market is coming our way. Given the tidal wave of breaches and the type of information breached, it is becoming easier and easier for criminals to steal our identities.

Over 145 million of our names, Social Security numbers and dates of birth were breached by Equifax alone.

Just last week, Equifax also announced that the photos of 38,000 drivers licenses, 3,200 passports and 3,000 military and state IDs were also hacked.

With this data, criminals can easily steal your identity. Intellicheck stops this fraud.

Loopholes in the system and changes made in 2011 to the way the Social Security numbers are created have allowed criminals to create identities out of thin air.

In April of last year, U.S. Postal Inspector David McGinnis called synthetic identity theft one of the fastest growing consumer fraud schemes.

Intellicheck stops this fraud.

In January, Accenture predicted that synthetic identity fraud will cost banks billions in 2018, while Javelin Strategy & Research put the total value of identity fraud losses at just shy of $17 billion in 2017.

In another interesting report put out by Accenture, their studies show that there is 12-month to 18-month cycle from the date of a data breach to when that data is used for fraud. While it was reported in September, the Equifax breach occurred from May to July of 2017.

If Accenture is correct, this should be a very interesting holiday shopping season for credit card issuers and retailers.

To make things even worse, all the research on this fraud trend says that it is moving online. And we have the perfect solution to combat this trend, Intellicheck Retail ID online stops this fraud.

As I said sad, the market is coming our way. So let me put that in context, when I got here we surveyed our clients to ask for what they say is their average dollar amount lost in a fraudulent transaction.

Whether identity theft, synthetic identity or a card-not-present transaction. For our department store clients, the actual fraud loss number averaged $2,100 per transaction. For our tool and equipment merchants, the average was $2,569. Furniture and home furnishings average fraudulent ticket was $2,908. And for jewelry stores, it was $3,574 per transaction.

Remember, these are actual fraud numbers as reported to us by our clients. By themselves, those numbers may not seem so large, but when you consider the amount of fraudulent transaction attempts, the fraud adds up quickly.

We looked at the number of fraudulent transactions, Retail ID stopped as criminals attempted to use fraudulent IDs to get credit or perform a card-not-present transaction for just 4 of our department store clients for the period of October 1, 2017 to April 15, 2018.

Retail ID stopped 35,000 transactions, saving those chains a combined $12 million per month. That is $12 million per month right to the bottom line.

Criminals may be able to steal your identity or create people out of thin air, but with Intellicheck's 99.9% plus accuracy rate, creating a valid government issued ID that passes the Intellicheck authentication is proving to be a challenge for criminals.

Authentication is the first line of defense in combating fraud and Retail ID has a proven record for preventing this from for our clients whether in-store or online.

Also in the consumer space is a sale of age restricted products. We're having great success with the alcohol and tobacco enforcement agencies across the country, with 33 agencies now using Age ID to enforce the law.

This, in turn, leads establishments in those states to use Age ID to comply with the law. Using the same technology the enforcement agencies are using makes obvious sense for them.

With more states legalizing the sale of cannabis, age restricted markets continue to grow. And I'm sure you're all aware of the discussions on Capitol Hill over the explosion of the number of teens vaping tobacco.

Again, another age restricted market coming our way.

Age ID is a quick to implement, effective solution to stop underage peoples from purchasing products they should not, again, whether in-store or online.

Our available markets in the consumer space doesn't stop at just shopping and age restricted products. As we've seen from the last election, we need to authenticate who's behind a tweet or a news story. If you open an account on a cryptocurrency exchange, how do they authenticate who you are? There are many transactions or interactions where you need to know that the person on the other side is authenticated and that they are really who they claim to be.

We see the number of interactions and the potential services where you need to authenticate the other side of the interaction growing and growing quickly. Not to be overly repetitive, but all of these markets are coming our way.

Authentication of a government issued ID is the best first step in a transaction and it's currently the best method of trusting that the other side of the transaction is with the intended participant.

Let me turn to Law ID. Since I last spoke to you 53 days ago, I said that by the end of the second quarter, we would be live in 4 more states. I am pleased to stay that in the state of Delaware, we now have the states of Virginia and Tennessee live, connectivity to New York and Massachusetts and the fingerprinting and clearance process is underway with South Carolina. We have additional pilots underway in Delaware, pilots started in Virginia and soon to start in Tennessee. We recently brought on board the new sales person dedicated specifically to Law ID, and they are already showing results.

We have several departments in New York committed to pilots as soon as the switch is thrown. The pilots in Delaware have all converted into paying clients with final counts of the officers to be outfitted with Law ID underway.

There are several reasons the officers tell us they like the product so much, but the main reason goes right back to our core competency. The fact that they can scan and instantly authenticate the ID presented to them meant they knew who they were talking with. That's a game changer for officers and enhances both officer and [citizen-paid] safety.

This is followed by the speed of the application and the fact that the officers were now truly mobile. One of the reasons we flipped so many NLETS switches over the past month is due to one of the words I spoke about on our last call, focus.

The board chose me to lead Intellicheck because they knew we had phenomenal products but were not able to monetize them as quickly as we would like.

On the last call, spoke about the focus we would bring to productivity, sales and marketing here at Intellicheck.

My first area of focus is the structure of the sales team. We made several changes to the team.

First, when we looked at the size of the market opportunities we had before us and the success we had with activating NLETS switches, it only made sense to create 2 dedicated teams. One focused on the consumer transaction market and the other on the law market. Each market is potentially large enough to deserve the unfettered focus of a team. The consumer team will focus on closing credit card insurers, retail chains, large-scale purchases of Age ID and other large authentication needs. The laws will focus on state and law enforcement opportunities, and this new structure is already yielding results.

As part of this process, we have terminated some employees who were not excelling at enterprise SaaS sales. And we've have hired a salesperson experienced in selling enterprise SaaS products to this market. And we'll be hiring more sales people experienced in enterprise SaaS sales.

The sales additions will be based out of our Melville New York headquarters. This focus and skill set match will lead to increases in revenue productivity in this important vertical. The second thing we're doing in the sales space, specifically for Age ID, is targeted direct mail marketing. We're focusing on the states where we have the alcohol, tobacco and cannabis authorities using Age ID and/or reseller relationships in those states. Our first marketing campaign is hitting as we speak. This should bring in low hanging fruit without expending sales time that should be spent on large SaaS deals.

Additionally, we've have engaged a search engine optimization firm and a direct marketing firm to help drive traffic and sales to our company. Our messaging is not as tight as it should be, and I'm interviewing firms to help us with messaging and marketing. Our PR activity is picking up. As many of you may have seen, heard or read in the TV spots, podcasts, articles and interviews.

We have a full schedule going forward because we have a very compelling and timely story that people want to hear. In closing, I want to reiterate how exciting my past 82 days has been.

I've completed a thorough evaluation of our people and products, and this has reinforced my belief in the company and the value proposition we provide across multiple and growing markets.

As with anything, things are never as quick as I would like. However, I am confident that realigning and focusing the sales team combined with the general awareness of the growing problem of identity fraud is helping to create this market and direct it our way. This should accelerate adoption of our products.

The pipeline for consumer authentication product is as strong as ever. And I believe our retooling of the sales team, focusing on this vertical, will increase and speed up our closing rate.

Our Law ID product is now off and running, and we have reference clients to help speed sales.

Given the opportunity I've seen over the past 82 days, as I said to start the call, I am even more excited that I was chosen to lead this company than I was on day 1.

I will now turn the call over to our CFO Bill White, to discuss the financial results.

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Billy Joe White, Intellicheck, Inc. - CFO, Treasurer & Secretary [4]

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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 first quarter ended March 31, 2018, that we released a short while ago. We anticipate that our Form 10-Q will we filed with the SEC later today. I'll begin with our first quarter results. Revenue for the first quarter ended March 31, 2018, grew 49% to $1,062,000 versus $713,000 for the same period last year. Our SaaS revenue was $595,000 for Q1 of 2018, which increased by 120% from approximately $270,000 for Q1 2017 and was a 5% sequential increase from approximately $569,000 in Q4 2017.

Gross profit as a percentage of revenue improved to 90.5% for the quarter ended March 31, 2018, compared to 84.6% for the quarter ended March 31, 2017. The increase in percentage is due to the high revenues of our SaaS product and product mix. Operating expenses that consist of selling, general and administrative and research and development expenses increased by 32% or $500,000 to $2,043,000 for the 3 months ended March 31, 2018, versus $1,543,000 for the 3 months ended March 31, 2017.

This increase was primarily driven by a higher headcount for our sales and development personnel and accelerated R&D efforts. The company posted a net loss of $1,068,000 for the 3 months ended March 31, 2018 compared to a net loss of $937,000 for the first quarter last year. The net loss per diluted share was $0.07 versus $0.09 in the prior year. Adjusted EBITDA for the quarter ended March 31, 2018, was a negative $962,000 compared to a negative $739,000 for the first quarter 2017. Interest and other income was negligible for the quarters. And I'd like to now focus on the company's liquidity and capital resources. As of March 31, 2018, the company had cash of $7.8 million, working capital, defined as current assets minus current liabilities, of $6.9 million, total assets of $17.7 million and stockholders' equity of $15.7 million.

During the 3 months ended March 31, 2018, the company used net cash of $244,000 compared to net cash used of $789,000 for the 3 months ended March 31, 2017. Net cash used in operating activities was $865,000 for the 3 months ended March 31, 2018, compared to $817,000 for the same period in 2017. Net cash used in investing activities was $67,000 for the quarter compared to a net cash provided by investing activities of $4,000 for the 3 months ended March 31, 2017. And we generated cash of $688,000 from financing activities during March 31, 2018 compared to $24,000 in the quarter ending March 31, 2017. On May 22, 2017, the company entered into a 1-year revolving credit facility with Northwest Bank. This agreement allows for maximum borrowings of $2 million secured by collateral accounts and bears interest at Northwest's money market plus 3%. As of today, there are no outstanding borrowings under this facility and we anticipate that our available cash as well as expected cash from operations and available under this facility will the sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. As of December 31, 2017, we had a net operating loss carryforward of approximately $11 million.

And I'll now turn the call back over to the operator who will take questions from our analysts and institutional investors. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from [Ashok Amir], a private investor.

(Operator Instructions) And we'll move on to our next question here from Tanner Hoban from Oppenheimer.

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Tanner Edward Hoban, Oppenheimer & Co. Inc., Research Division - Associate [2]

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Can you talk a little bit about the timeline for productivity for your new sales team restructuring initiative and what you expect going out for the rest of the year? And how that could impact your extended sales cycles that was previously mentioned over the past few phone calls?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [3]

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This is Bryan Lewis. I don't expect a major impact in terms of the productivity. We've got our VP of Sales, Paul Fisher, is stepping in to actually take over one of the territories, probably the best salesperson we have here. So I think that should help out. And then also bringing in somebody with experience selling large-scale SaaS enterprise implementations to the banking industry. I don't it see having a major impact on what we're doing on the consumer side. I only see upside in focusing with 2 sales people in law. So we took 1 of our existing sales people in addition to the hire that we made a few months ago and are having them work as a team to bring on board as many of the agencies within the states where we've turned the switch as possible.

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Tanner Edward Hoban, Oppenheimer & Co. Inc., Research Division - Associate [4]

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Got it. And also furthermore, can you talk a little bit about your pipeline growth. It seemed the SaaS revenue was increased on a sequential basis about 5%, and over the past 3 quarters, it seemed to decelerate a little bit. Is this anything to do with any of a slow in pipeline growth? Is it just primarily attributable to the execution that you mentioned on previous calls? Can you help us understand how -- what we should expect from SaaS revenue growth, particularly as new sales hires are helping to ramp up the law portion and as you look to -- for new initiatives for the consumer transaction portion?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [5]

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Look, I'd say that the pipeline is, as I think I said in my remarks, as robust as it's ever been. And I think, also, as we really realize where this authentication technology can be used, the pipeline is going on -- going to just expand. My concern is pipelines are great, closing is a heck of a lot better. So I think there were some execution issues, which we are working on, which hopefully will speed the pipeline up. That is the goal of the restructuring is to have the right skill set match to the right client type. And if we do that properly, we should see an increase in our execution capabilities in closing.

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Operator [6]

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Our next question is from Mike Grondahl with Northland Capital Markets.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [7]

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Any update on the other large bank partner you were kind of talking to or the electronics retailer?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [8]

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Yes, I will say that we were working with that bank partner in conjunction with another vendor. They were looking for a combined solution from both companies. They decided that, that combined solution didn't make sense. However, they wanted to speak with us directly. So we are still -- it's one of those things that, unfortunately, given the change in their strategy, is probably sliding to the right a little bit, but we are still in active discussions and negotiations.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [9]

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Got it. And then the electronics retailer, is that still in the pipeline?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [10]

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You are correct. Yes, sir.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [11]

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Have you lost anything out of the pipeline?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [12]

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Well, when I go back and look at what we did, I can say that we've not lost anybody to a competitor. We've lost -- the things that I say that might have been large that we lost have been in the Age ID space. We were working with a very large concert venue, somebody who provides the beverage services and everything. And while the pilot that we worked with them, I'd say, was a complete success. It did everything that they wanted. It taught us a lot about what we needed to do in that space, which brought us in other clients of similar size and, again, helped us build a product that I think has very broad applicability. But at the end of the day, they boiled down, for that particular client, that being socially responsible might be nice but it's not required by the law. Thankfully, we have a lot of other clients who believe that being socially responsible in keeping age restricted products out of the hands of underage people is a competitive advantage. And I think that also shows in the amount of the alcohol beverage, tobacco control boards that use our product. So while that -- I would call that one lost, I would say that I don't see it lost forever. We continue to speak to them and, hopefully, educate them on the competitive advantage of making sure that you're serving only people that you should. And to understand that the reputational risk that they take on is probably not worth it compared to what it would cost to make sure that those people aren't getting the products that they should not have.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [13]

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Got it. And then I think for Law ID, I heard Delaware, Virginia and Tennessee where live and the first 2 had some pilots going and maybe some pilots soon in Tennessee. What were the other states you mentioned and their status?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [14]

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Sure. So Massachusetts and New York, we have, what I would term, connectivity, which means, our computers are talking to each other, we're sending messages back and forth. Every state has some slightly different messages that they get -- that we would receive from their state's specific systems. So in the states, that's what we're programming to now. It's generally a couple of week process. The federal stuff is the same, we've got that program for everybody.

So Mass and New York are on -- kind of connected, computers are speaking and we're programming so that we get all the messages right and we can put the devices in the hands of the officers.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [15]

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Got it. And then I think you mentioned South Carolina, but maybe I misheard you.

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Bryan Lewis, Intellicheck, Inc. - CEO & President [16]

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Yes, in South Carolina, the first step in doing any work with the state is they have to put us through security clearance. So everybody who works on the products, anybody who can see what's going on with the product has to be fingerprinted and security cleared. So we are doing that right now with South Carolina. Once that's done, then we begin connectivity testing, and as soon as that's done, then we begin the programming. But we have certainly learned a lot about how to speed this up as you can probably tell by the numbers last quarter to this quarter in terms of switches flipped.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [17]

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Yes, definitely. And then, I think you talked about 4 of your retailers, I think, where from October 1 to April 15 you kind of helped prevent 35,000 transactions. And -- did you say that, that saved those retailers $12 million a month or in total?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [18]

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$12 million a month.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [19]

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I mean, it feels like that's your marketing slogan right there. I mean that's just a huge number.

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Bryan Lewis, Intellicheck, Inc. - CEO & President [20]

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You're absolutely on to what it is that we're doing. Because there's a couple of things that, one, I can say with certainty. I see when somebody comes in and tries to use an ID that is fake, and we know it because we flag it and we keep those counts. And then the thing that really makes the story is when we went out and we asked our clients by client type, how much is the average hit every time somebody comes in and does one of these fraudulent transactions. And that's where we got these numbers ranging $2,100 for retail up to just over $3,500 per transaction for jewelry. And you can imagine how easy that it is to do. If I come in and I get fake credit and I walk out of your store with a brand new Rolex, that hurts. And that's what we're stopping.

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Michael John Grondahl, Northland Capital Markets, Research Division - Head of Equity Research & Senior Research Analyst [21]

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Got it. And then how should we think about sequential growth 2Q, 3Q and 4Q, the rest of '18?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [22]

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I really can't provide guidance on that other than to say we have a very, very strong pipeline. I believe that we're putting the right sales team in place to attack both of these very large markets in the way that we need to do it.

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Operator [23]

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Our next question is from [Michael Samuels] from (inaudible).

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Unidentified Analyst, [24]

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I'm just wondering, I know, so far, everything we've done are on the small side, like the [sixth] shop (inaudible). What is the capability that we have to go to the bigger ones in all the department stores, even in the -- like the Age ID, the big, big venues and the sports teams, things like that? Do we have the capability to do it?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [25]

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Yes, we absolutely have the capability. Your question is do we have the computer bandwidth to handle it?

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Unidentified Analyst, [26]

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Correct. Are we able -- if we were to land a couple of these, would we be able to service them?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [27]

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Yes, absolutely. First off, we've got clients that have over 1,000 stores. And we do millions of scans, it's not an issue for us. The technology has been set up. It's all in the cloud, so that if we need more headroom, we can easily flip it on. It's, again, not anything, from an IT technology standpoint, we can turn around and bring on any number of large clients and scale it near instantaneously.

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Unidentified Analyst, [28]

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And as per getting the actual apparatuses, we have that. That wouldn't be a problem?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [29]

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What do you mean by apparatus?

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Unidentified Analyst, [30]

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Well, I'm saying, so like for like every person that runs it, isn't there like a machine that it goes through? Or they just scan it?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [31]

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Well, if you think about most of the large stores that we're going into, they integrate us into their point-of-sale system. So they already have the equipment. It's that same scanner that you see somebody scanning when you purchase, it just scans the back of the license.

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Unidentified Analyst, [32]

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Okay. And then 1 last question on, in the previous calls we talked a lot and I know -- I don't know if we can say anything on it or not, we talked a lot about the Honeywell lawsuit, which we initiated but, all of the sudden, it just seems to have disappeared and nobody is saying a word about it. Just if there is any update or anything you could maybe give us on that?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [33]

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Yes, I'll just repeat what we said during the last earnings call, that the settlement was confidential on both sides. So neither ourselves or Honeywell can speak about it. I'd also say that if there are anything material about it, if would have been in the Q.

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Operator [34]

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Our next question is from Roger Liddell from Clear Harbor Asset Management.

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Donald Roger Brooke Liddell, Clear Harbor Asset Management, LLC - Managing Member, Investment Manager and Vice-Chairman [35]

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Bryan, can you shed some light on the adoption process. I'm thinking of major credit card issuers who, in the past and, I take it, have continued to sponsor pilot projects, demonstration, I'm not sure which word I should use. But in any event, the bank was willing to foot the bill to do the demonstration and my understanding is there have been unqualified successes for those retailers, the scope of the one you put on this call, the $1 million -- $12 million a month is stunning. I don't need $12 million to make it successful. But how should I think about the adoption process at those issuers once we've gone through the process of demonstrating the product?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [36]

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Well, I think, Roger, that that's part of -- with the revamping of the sales team and how we're going to be going out and tackling the large banks, who bear most of the pain when it comes to this loss. I think we've done very well at going to some of the individual stores and showing them how we can help them with the portion of the loss that they would bear. And we probably haven't been as good as I would like in, then, taking that story to the banks themselves, who are issuing the credit and taking on most of it. And part of that was, again, a focus issue. We had our salespeople doing more than I think they should or could when they were trying to sell all products to all people. So jack of all trades and master of none. I think that now with having a dedicated team going to the bank, having this research now so that we can confidently go in and put together -- I can sit with a bank right now and say, all right, this is what all of our clients are telling us, we know that this is the rate at which we see fraudulent transactions come in, and create a compelling story to somebody at the bank that says, even if my numbers are off, cut them in half, it's still a very effective solution, very cost effective to you and it's going to really add to your bottom line.

So I would say, Roger, that it's part of the education retooling process that we have here going on right now. But with the team that we have in place and, I think, under Paul's leadership, the consumer transaction space will improve and improve, hopefully, quickly.

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Donald Roger Brooke Liddell, Clear Harbor Asset Management, LLC - Managing Member, Investment Manager and Vice-Chairman [37]

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Okay. And for the turning on switches and getting states up and running. You were willing to put some credibility on the line, giving us the 4 by the end of the second quarter. And I think you're saying that, that box has been checked. Can you, at this point, look forward to anything beyond this current quarter and give us directionally or with adjectives, if not percentages, but how we might see that adaptation slope go?

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Bryan Lewis, Intellicheck, Inc. - CEO & President [38]

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Yes, I think there's a couple things that we could talk about. One is do we bring on a lot more states or do we concentrate on just what we have? There are -- I will tell you that there are a couple of states where you'd have a lot of interests in the past, and we just weren't good at getting the switch up. I want to focus on getting a couple of those states up. They've got police departments of the size that I think would be really good and really important to us to have -- to make sure that we get them. But I also want to make sure that we have the bandwidth to be able to really make money out of what we're turning on. I just want to make sure that we're not turning on switches for the sake of turning on switches. So for example, in the 5 states that we talked about, Delaware, Virginia, Tennessee, Massachusetts and New York, there are over 145,000 sworn officers in those states. So if we just got 2.5% of them converted into clients, that's a multimillion dollar opportunity.

So I want to make sure that we capitalize on the opportunity that we have in front of us as opposed to always just chasing that next switch. We'd really like to see the states where we're in, we get really good clients in those states. Because it's my belief that after we get enough of these states really using it, it becomes viral. And people want to buy the product and we don't need to sell the product.

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Operator [39]

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This concludes the question-and-answer session. I'd like to turn the floor back over to management for any closing comments.

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Bryan Lewis, Intellicheck, Inc. - CEO & President [40]

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So I just want to thank everybody for attending the conference call. I want to reiterate how much fun I've had in the past 82 days, how supportive and, I think, a very strong management team that we have in place. And I can tell you that I am very much looking forward to our next call.

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Operator [41]

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