Intellicheck - Q2 2024

Transcript

Operator (participant)

Greetings, and welcome to the Intellicheck Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Gar Jackson, Investor Relations. Please go ahead.

Gar Jackson (Head of Investor Relations)

Thank you, operator. Good afternoon, and thank you for joining us today for the Intellicheck second quarter 2024 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, August 8, 2024. Management will use the financial term Adjusted EBITDA on today's call. Please refer to the company's press release issued this afternoon for further definition, reconciliation, and context for the use of this term.

We'll begin today's call with Brian Lewis, Intellicheck's Chief Executive Officer, and then Jeff Ishmael, Intellicheck's Chief Operating Officer and Chief Financial Officer, who will discuss the second quarter financial results. Following their prepared remarks, we will take questions from our analysts and institutional investors. Today's call will be limited to one hour, and I will now turn the call over to Brian.

Bryan Lewis (CEO)

Thanks, Garr, and thank you all for joining us for our Q2 earnings call. As we begin today, it is important to look at a milestone that highlights what I continue to emphasize. Fraud and identity theft isn't going away, and a look at the latest data underscores the significance and pervasiveness of the problem. According to the Identity Theft Resource Center, the number of data breach victims has exceeded 1 billion people for the first half of 2024, compared to 183 million people who were data breach victims in the first half of 2023. That represents more than a 400% increase, and both are staggering numbers. It's worth pausing a moment to digest the impact. Each of these data breach victims are now prime candidates for identity theft and fraud.

To underscore that data breaches equal identity theft, remember that in 2023, there was a 13% increase in traditional identity theft losses, where a stolen identity was used to commit a crime. Losses rose to $23 billion, impacting 15 million victims in the U.S. With that as a backdrop, our mission remains clear. We continue to believe that our technology is the most effective at stopping fraud and identity theft, and that Intellicheck is the best first step in identifying that a person is who they say they are. It's that simple.

The Intellicheck Identity Platform allows our customers to confirm that the person they are entering into a transaction with is who they say they are, and that they can and want to do business with them, and our customers are able to do it so quickly, easily, and seamlessly without the need for new hardware. Because of our proven technology's high degree of accuracy, this simple first step allows a transaction to go forward with confidence, facilitating the onboarding of new good customers while assuring bad actors will not be successful. In looking at Q2, you will see the value of the strategic moves we have made. You're probably well aware that we are currently heavily dependent on our retailers to drive revenue.

We have been successfully expanding our presence in additional market verticals in line with our strategic plan to remain agile as we look to continue to fuel growth. Understand that we are still building on a relatively small base, but one that is growing. This diversification will take time, but we believe we are well underway. Turning now to a brief overview of our Q2 results that Jeff will go over in more detail shortly. Q2 SaaS revenues were $4.6 million, down $36,000 versus a year ago period. We maintained robust expense discipline, showcased by our operating expenses that were down $770,000, or 17%, versus the same period last year.

The company's net income improved by $726,000, to a net loss of $127,000 for the second quarter of 2024, compared to a net loss of $853,000 for the same period in 2023. A snapshot of market realities gives you an important frame of reference. As it stands today, retail continues to be largely bifurcated, with the luxury segment benefiting from high income purchasers, so it's doing relatively well. However, our clients include many apparel retailers who continue to see headwinds from consumer pullback, and this also impacts department and home improvement stores, channels that continue to struggle for the most part. While we continue to stop fraud effectively for our customers in these verticals, our retail concentration had an impact on our second quarter results....

Additionally, we are seeing more news of activity around bankruptcies and store closures, including one of our customers that entered Chapter 11 towards the end of July, and another that is a home discount retailer, closing down a significant number of stores. This reinforces why we believe that it's becoming ever more important to continue to expand our reach outside of traditional retailers into the new verticals we have been focusing on. When comparing Q1 to Q2 of this year, we saw an 11% sequential increase in our new customer average price per scan. This increase speaks to our diversification strategy and newer verticals having a higher price per scan. However, scan volumes and revenues in our legacy verticals continue to be pressured.

Year-over-year, we saw double-digit negative comps among our department store, apparel, and cosmetic retailers, with more significant headwinds from our furnishing and home improvement verticals. This scan volume was partially offset by our electronics vertical and the new categories we have begun focusing on, including auto, title insurance, and the email and social media verticals. We continue to believe that expanding our presence in market verticals like email and social media authentication, as well as title insurance and automotive, that are complemented by our new channel partner program, will result in significant drivers of increased volume in the future as we continue to build momentum in these new categories that continue to suffer from significant fraud.

Despite these headwinds, as you can see, we have and will continue to move forward with a laser focus on signing new customers and expanding our use cases among existing customers that continue to seek out additional ways to keep the bad guys at bay and protect their businesses from the growing fraud landscape. At the same time, I've moved forward with staffing changes that speak to what I've long told you. I'm continually evaluating our needs and our performance to make changes where we need to strengthen the organization. On Friday, we will be welcoming Sandra Bauer, who will serve as our Vice President of Customer Experience and Account Management. Sandra brings significant relevant experience to this new position at Intellicheck.

She is an innovative client experience executive who has a track record of driving success through recurring revenue growth and client, client retention for companies such as Juniper, Okta, Apttus, Salesforce, and more. Her SaaS company experience is reflected throughout her more than two decades of high-tech experience, which also include developing customer experience strategies and high-performing account management teams, in addition to sales operation expertise that aligns the customer experience across the organizational spectrum. Sandra will have lead responsibility for the implementation process, customer revenues, and account management services. Sandra comes to us from Entrust, and as Head of Account Management there, she overhauled the customer management programs, resulting in increases in retention, revenue, and satisfaction scores. We are excited to have her on board and fill this new important role.

Just as importantly, this change will allow Chris Meyer to focus his attention solely on his team, bringing on board named accounts and prominent logos that we believe will really drive growth going forward. Chris has demonstrated his strength in this regard. Over his past nine years with Intellicheck, Chris has been responsible for bringing on board many of our largest customers that generate a significant portion of our revenues. We are all very excited to allow Chris to focus exclusively on generating sales, while Sandra focuses on the customer experience and account management, along with working in conjunction with the IT team to drive rapid and successful implementations. Turning now to our Q2 wins. Doma Title Insurance is one of our newest clients.

We were very excited to see their press release on August sixth, highlighting the partnership in which Doma independent title agents and their approved attorneys are now able to use Intellicheck to detect seller impersonation fraud. Doma Title Insurance is the nation's eighth largest title insurer, and they understand the importance of Intellicheck's industry-leading identity validation technology. In 2023, 30% of all claims paid by Doma Title Insurance involved fraud and forgery, which includes seller ID fraud claims. According to Doma's Chief Claims Counsel, Kris Chesney, only a few months into 2024, claims involving seller impersonation have already surpassed full-year 2023 levels. In their press release, their claims counsel noted, "Most of these claims result in a full loss of title, meaning one claim can easily cause a loss of $500,000 or more.

The vast majority of these claims are preventable using our seller ID verification tool." I appreciated the opportunity to comment in the Doma press release, and as I stated there, "The nationwide surge in real estate scams are a serious threat to transaction security and consumer confidence. Our partnership allows Doma to deliver the highest level of security that assures peace of mind for title agents and their customers with Intellicheck's rapid, accurate identity verification technology. Now they can engage good customers with a seamless onboarding experience while preventing fraudulent transactions from occurring." Our lease-to-own retail client with over 1,700 locations that operates as an omni-channel platform company committed to elevating financial opportunity for all through innovative, inclusive, and technology-driven financial solutions, completed their proof of concept with Intellicheck.

The pilot was very successful, and they are now looking to expand beyond their original use case for brick-and-mortar locations with a focus on their LTO product, and we are currently putting the master service agreement in place to do so. The real estate transaction platform we had previously told you was coming on board is now live. They are in the process of rolling out Intellicheck's technology to all of their customers. This company is a leading comprehensive digital closing platform used by title, escrow, real estate, and mortgage lending professionals to transform home buying and selling into a simple, secure, enjoyable experience for millions of homeowners each year. The platform provides a system of record for real estate settlement ecosystems through a suite of workflow, accounting, reporting, and collaboration products, as well as its expansive product and service integrations.

While they only went live near the end of June, their agents are excited and volumes are increasing. We also realized great progress with the company we signed, which is dedicated to wire service transfer fraud prevention. We are now live with the completion of the integration of Intellicheck's state-of-the-art identity platform into their agent platform for wire transfers and now other KYC needs. We are also now live with the ID and credential verification app company that is designed specifically for transport and logistics. Given that so many truck drivers are hired remotely, this company is using Intellicheck to verify drivers' credentials to be sure the drivers are who they say they are. We also signed and went live in record time with the top five title insurance company that has integrated our platform into their portal for title agents to improve overall transaction integrity.

The integration enhances agents' due diligence process, mitigates risk, and prevents fraud. They are rolling out to their clients this month. We also, in the quarter, signed and brought live for a proof of concept, a very large food and beverage company to stop fraudulent trailer pickups. They've been dealing with skyrocketing incidents of fraudsters showing up with fake IDs and driving off with trailers loaded with valuable merchandise. They were also concerned about keeping drivers with expired licenses from getting behind the wheel. The company has been using Intellicheck's verification technology to authenticate delivery drivers and prove that their license are not expired when making a warehouse trailer pickup. So far, the proof of concept is going extremely well, and they are introducing us to other companies that have the same issues. In Q2, we expanded into a new vertical that we believe has large potential.

This new client provides employment screening software solutions within the background screening industry. This is another example of our channel strategy. There are an estimated 1,268 background check companies in the US. We don't want to knock on every door, so we believe that partnering with the people who provide them the tools to run their business makes the most sense. Here is yet another example where the critical focus is on knowing that the person our clients are working with is who they say they are. This is an obvious fit for our product in which our technology solution will be used when conducting background checks. Since we're talking about background checks, this is yet another way we can work with universities.

As I have spoken about before, the Intellicheck identity platform first lets you know that the person is who they say they are, and second, gives the user the information they need to know whether they can and want to do business with this person. Universities have the same issue, especially for temporary employees on athletic game days. We just signed a prominent school in Utah that will be using our platform for ID verification and criminal background checks for this use case. We are currently in discussions with several other universities to do the same thing. This represents the third use case we have with the universities: alcohol sales at stadiums, stopping financial aid theft, and now employment. We believe that this progress illustrates that we continue to diversify into new industries that are not dependent on consumer credit, but are dependent on stopping fraud.

Regarding the large social media company, additional engineering and development resources have been allocated on the social media company side. As we said before, we can only move as fast as the clients move on their side. They've informed us that the additional engineering resources have been allocated to project, and we continue to believe that we will be up and running by year-end. The other large client opportunity, the top three bank that we are anticipating going live by year-end for online authentication, has made some internal changes. They have built out an internal team that has taken them in another direction within the organization, and fortunately, it looks like they will be doing something different online. But we still continue to talk to them about in person.

Turning now to our IT initiatives, I'm very pleased to share a quick peek at our exciting new technology advances that will be released later this year. Scheduled for Q3, we will be releasing our new Intellicheck Hub for our customers to access their transaction data and perform self-administration tasks. This provides two important things: valuable insights to our clients about how transactions are happening and how they can improve their process, especially in the digital world. And second, it removes a lot of administrative burden from Intellicheck's support staff, freeing them up to provide more value-added services to our clients. This product release reflects our responsiveness to input from clients. We are constantly communicating with our clients to understand their evolving needs and to respond to them. I'm proud to say that we delivered....

Fraudsters are relentless, and their ever-changing tactics are designed to try and defeat the safeguards in place. We are continuously enhancing our ID verification platform to deal with the latest fraud attacks. We are implementing and expanding capabilities to include new machine learning and statistical calculations to thwart the latest printed physical fake IDs and generative AI attacks. Our data science team has released new proprietary statistical models that dramatically improve the OCR match processing. These features also allow our customers to weight these factors in their own models, something we had not done before. In addition, we continue to enhance document liveness techniques to enable physical ID documents to be presented during an electronic validation flow that uses the end user's phone.

These checks can confirm if the documents presented in this session are physical versus printed images, or simulated by pointing the camera at another screen, or they can spot edits to the user's picture printed on the front of ID, which is common with generative AI attacks. You may recall we introduced a product called Capture to simplify our clients' remote capture of documents. Instead of doing a lot of programming with two simple webhooks to Intellicheck, we did it for them. It was completely white labeled, and their clients never knew it was us. We are now providing a similar tool for clients that want to embed us in their proprietary mobile app. With this new tool, our clients can make one call from their mobile app to launch the Intellicheck identity validation process.

Again, this is completely white labeled within their app, and their customer never even knew it was us. As we like to say, the best identity experience for your customer that they never knew they had. So before turning the call over to Jeff to discuss our Q2 financial results, I have mixed feelings as I turn to Jeff one last time to discuss our quarterly results. Jeff, everyone at Intellicheck is grateful to you for all your contributions over the past two years. At the same time, it's hard to say goodbye to someone I think of so much of personally and professionally. And I'm also delighted to introduce our listeners today to Adam Sragovicz, who will be taking over the role of CFO on September first. Jeff and Adam have already been working together on a seamless transition.

Jeff has built a solid finance team, and under Adam's leadership, we believe that we are well positioned going forward. With that, I thank Jeff, and I turn the call over to him to discuss our Q2 results.

Jeffrey Ishmael (COO and CFO)

Thank you, Brian. I very much appreciate those kind comments. I'm pleased with the continued progress that we've been making throughout the organization as we continue our efforts to recalibrate our spend and redistribute investment into the areas that we believe will fuel our growth and profitability, as well as continued improvement in both our net income and earnings per share results for the second quarter. We are continuing our focus on the metrics of SaaS revenue. As we had previously discussed, we have completed the right sizing of pricing for our legacy accounts. We continue enforcing internal disciplines on CPI increases, and we have continued signing on new customers at higher rates than we have traditionally executed. We remain encouraged by the improvement in our price per scan metric as it continues to speak to the testimony of the value realized by our new and existing customers.

We are also continuing to maintain our focus on operating expenses to ensure that we achieve the expected return on investments in this area. Within the second quarter period, we realized additional benefits of our 2023 restructuring efforts, which contributed to the subsequent improvement in our year-over-year net income results. Turning now to our second quarter results. Revenue for the second quarter of 2024 decreased 1% to $4,672,000, compared to $4,716,000 in the same period of 2023. Our SaaS revenue for the second quarter of 2024 decreased 0.8% to $4,627,000 from $4,663,000 during the same period of 2023, and representing 99% of our second quarter revenue.

Gross profit as a percentage of revenues was in line with our expectations at 90.5% for the second quarter of 2024, compared to 92.5% for the same period of 2023. The result is within our previously discussed range of 90%-91% and is reflective of our rearchitecture efforts as we incurred planned overlap in our cloud expense fees. Our product team has demonstrated that they have been able to maintain recurring margins of over 90% throughout the rearchitecture projects process. That being said, we will continue to scrutinize our cost structure with the goal to maintain or improve upon that level.

Operating expenses, which consist of selling, general, and administrative, marketing, and research and development expenses, decreased $770,000 or 17.3% to $4,443,000 for the second quarter of 2024, compared to $5,213,000 for the same period of 2023. Included within operating expenses for the second quarter of 2024 and 2023 were $72,000 and $323,000, respectively, of non-cash equity compensation expense. Within the second quarter, we recognized $781,000 in software capitalization tied to our rearchitecture efforts. While this was higher than our prior guidance, the product team was able to accelerate their rearchitecture efforts in the second quarter and complete the process they kicked off in the fourth quarter of 2023.

The product team, which was supporting multiple implementation projects, leaned heavier on external consultants to complete the rearchitecture efforts within their originally committed second quarter timeframe. ... On a constant basis, adding back in our capitalized software expense, our operating expenses as a percentage of revenues increased 128 basis points against the same period of 2023. Turning to net income and Adjusted EBITDA. The company's net income improved by $726,000, or 83%, to a net loss of $127,000 for the second quarter of 2024, compared to a net loss of $853,000 for the same period of 2023.

Net loss per diluted share for the second quarter of 2024 improved by $0.03, to a net loss of $0.01 per diluted share, compared to the net loss of $0.04 per diluted share for the same period of 2023. The weighted average diluted common shares were 19.5 million for the second quarter of 2024, compared to 19.1 million for the same period of 2023. Adjusted EBITDA, earnings before interest and other income, provision for income taxes, sales tax accruals, depreciation, amortization, stock-based compensation expense, and certain non-recurring charges decreased by $106,000, resulting in a loss of $70,000, compared to a gain of $36,000 for the same period of 2023. Our balance sheet remains strong, and we finished the second quarter with $7.3 million in cash and short-term investments.

We also continue to ensure we are properly managing our cash reserves, which generated $88,000 in interest income during the second quarter, versus an absence of interest income in the same period of 2023. Turning now to the progress on our internal initiatives. 2024 continues to represent a year of execution, as we will continue to pivot off our 2023 restructuring effort and deploy our spending to meaningful marketing and brand initiatives that we believe will drive top line revenue. As we have previously discussed, we have successfully executed on a material shift in our expenses, where we have taken previously allocated G&A spend and moved that into support for trade shows, regional conferences, and other brand initiatives.

As Brian discussed on our last call, Quick Strike efforts across the team have resulted in the attendance of 6 trade shows in the first half of 2024, with additional shows planned in the second half of the year. This is a key call-out, as the company, outside of targeted meetings, did not have a physical presence at any trade show since prior to COVID. While we have historically not segregated our sales and marketing expenses, this portion of our operating expenses are up 21% versus the prior year and comprise 34% of our total operating expenses, versus 24% in the prior year. Turning to our R&D expenses, and as we have previously communicated, our R&D spend continued to decrease year-over-year during the second quarter as we completed our rearchitecture efforts within the targeted second quarter timeframe.

As previously guided for 2024, we expect our R&D will comprise no more than 18%-20% of our operating expenses moving forward, which compares to approximately 30% during the 2020-2022 period, which we then subsequently reduced to approximately 22% in 2023. This change in spend composition has supported the rearchitecture of the product platform, which has been a three-quarter focus of Jonathan and the product team, along with the bolstering of our data science efforts, which we expect will result in a higher level of service and reporting for our customers. Overall, we expect to continue seeing leverage increases in our OpEx spend against anticipated growth in the latter half of 2024 and into 2025.

While we have been significantly increasing program spend on the sales and marketing side of the business to drive top line revenues, we believe we are still properly structured in our headcount and expect a 2024 year-end headcount that will be approximately equal to the headcount we finished with in 2022. We believe that we now have a significantly higher caliber team that has the financial support and data analytics to drive the growth that we expect this brand should be able to achieve. As mentioned in earlier remarks, we continue to stay focused on our cost structure, which, when adjusted for previously mentioned software capitalization, continues to show improved leverage versus prior years.

The result is consistent with our focus on bringing down our operating expenses as a percentage of revenues, which averaged 135% of our SaaS revenues during the 2020 and 2022 period. We remain committed to improving our Adjusted EBITDA results for the year, a commitment which we exceeded last year and now puts us on a position to start moving our results into a more positive position for 2024. As discussed in our last call, improved Adjusted EBITDA results for 2024 will be the combined disciplines of executing on our revenue plans, ensuring consistency in our gross margins, and holding all the team accountable to their FY 2024 operating budgets.

During the prior quarter, we also discussed the continued cultivation of partnerships and the development that was being done with recognized hardware companies, and I'm encouraged by the foundation that has been getting laid over the last three quarters since the program was initiated. Since the proper launch of the program in the fourth quarter, we have finalized agreements with 21 partners and have another 10 scheduled to sign by the end of Q3. This partner count is higher than we were originally targeting, so the key focus in the second half of the year will be fully activating these new partners and generating meaningful bookings and revenues to fuel growth in 2025. We have been actively cultivating new partners across identity access management platforms, hardware OEMs, as well as an expansion of our real estate and automotive partnerships, which Chris had originally started cultivating.

In consideration of our second half 2024 outlook, we expect to see continued gross margins of approximately 90%-91%, while we continue to improve our architecture and data intelligence capabilities.... We also expect to see continued leverage in our operating expenses as a result of the expense initiatives we implemented in 2023. As previously discussed, we expect the non-cash component of our spend to decrease by 400-500 basis points, versus 2023, with 90% of that being total stock-based compensation. In closing, I want to thank everyone on the Intellicheck team for allowing me the opportunity to join them and providing the necessary support to make the meaningful changes we have over the last two years plus.

I'm pleased that we've been able to leave Brian and Adam a solid financial reporting and forecasting platform, an improved and healthy auditor relationship, and a remediation of open historical accounting issues that existed prior to my arrival. I'm confident that all the necessary support mechanisms are in place for Brian and Adam to focus on accelerating the growth opportunities that are available to this company. I look forward to listening to our Q3 results with all of you in November, hosted by Brian and Adam.

Operator (participant)

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker phone, it may be necessary to pick up your headset before pressing the star keys. Our first question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Please proceed.

Jeff Van Rhee (Partner)

Hey, guys. Thanks for taking my question. This is Daniel on for Jeff. Just on the retail, if we could double click on that and the headwinds there, are you seeing the retail customers cutting back on actual use cases, the number of locations that they're deploying the solution? Or is this more just them seeing less volume and naturally having less account openings, less, you know, card-not-present uses, et cetera?

Bryan Lewis (CEO)

Stopped using the product or stopped using it in any form that they used to use it before. And, you know, and unfortunately, the only time we're seeing that they're using it in less stores is because they're closing them. You know, so we've got, you know, one of our one of the retailers that comes to us through a bank is talking about shutting down 300 stores. We had one retailer, as we discussed, you know, that comes directly to us, you know, declared bankruptcy and is shutting down all of their stores. So there's a combination of that, and then I think just, you know, we're seeing less traffic in a way. You know, certainly, you know, credit card debt is up huge. Delinquencies are up.

So, you know, I think part of it is just consumers, you know, are having problem with credit, and I don't think they're shopping as much, which shows in some of the retailers, you know, their earnings. So no, nobody is not using it in any way that they used it before. Nobody is not using it in stores that are open. It is really, you know, some economic factors, bankruptcies and, you know, downsizing of the retailers.

Jeff Van Rhee (Partner)

Makes sense. And then just last quarter, you quantified the retail volumes as being down, I believe, 10% year-over-year. Do you have that number this quarter?

Bryan Lewis (CEO)

Yeah. Overall, they're down about 16%, year-over-year. And it, you know, and it, it's a variation. You know, some, like I said, electronics, you know, electronics and sporting goods are up. You know, and then everything else is, you know, down, you know, at varying levels, depending on, on which particular vertical, you know, we're talking about. You know, apparel, is, you know, and, and department stores and home improvement are all slightly different, but, you know, for the most part, down.

Jeff Van Rhee (Partner)

Okay, thanks. The quantification's super helpful. And then just last of all, how would you advise us thinking through modeling this going forward in terms of the retail decline and how you would think about that playing into the next few quarters relative to this one? Thanks.

Bryan Lewis (CEO)

Look, I think it's, in a way, it's hard to say because I think a lot of it's tied to, you know, however the economy does, you know? So I'm kind of looking at this as, you know, what I'm excited about is, if you think about it, our largest revenue sector is down 16%, right? But we're flat, which, in my mind, shows that, you know, diversifying into other sectors that aren't as dependent upon consumer credit really matters. And then, and then again, the way I look at it is, when the economy does turn around, thank you very much for the tailwind of retail picking up, in addition to all of the new verticals that we're getting into. And there's a lot of good verticals out there that we're getting into.

You know, I just right before the call, because we're starting to get in, we have some property management and getting more into more of it, but 93.3% of all residential property operators said that they had experienced fraud, and the National Apartment Association recommends stricter ID checks, which is probably why we're seeing inbound leads from that stuff. So I think that, you know, the diversification is working. The economy is probably, you know, certainly a headwind when it comes to, you know, our big sector of retail. The economy turns around, I'm gonna love that tailwind.

Jeff Van Rhee (Partner)

Well, thanks for taking my questions, and best wishes for any future endeavors, Jeff.

Bryan Lewis (CEO)

Thank you. Guys, good one.

Operator (participant)

The next question comes from the line of Rudy Kessinger with D.A. Davidson. Please proceed.

Speaker 5

Hey, this is Andres for Rudy. I guess following up from the previous question, excluding the seasonal strength that we saw in Q4, SaaS revenue has been effectively flat since Q2 of last year. If you could put a finer point on why is that, is it primarily because of the scam volume declines or the retailers? If you could break it down a little bit more, that'll be helpful.

Bryan Lewis (CEO)

But I mean, again, when we have, you know, our largest sector, right? It and I'm gonna go back to it, that if we hadn't, you know, about a year ago, really started working with channel partners and getting into other sectors, it, you know, we would have been down because retail was down so much, right? When, again, the sector that represents probably about 95% of our revenue is down 16%, you know, that would not be good. But we're flat, basically, because of the other sectors that we have been selling into that aren't so dependent upon consumer credit or somebody going into a store and, you know, doing an account lookup when buying merchandise on credit.

So, you know, you know, that is the story, you know, it's that retail is off, our other sectors are a combination of up and also up at higher prices. You know, again, new business sales are at significantly higher rates than our traditional long-term clients that are, you know, represent most of this retail. So understanding pricing power, understanding new markets is what's, you know, helping us, you know, drive growth. And then, you know, quite frankly, when we get some of these large clients that we've been waiting for to get their resources available so that they can complete, complete the implementation on their side for whatever it is they need, internal compliance systems or other things like that, you know, once they go, you, you know, that's sort of the, you know, the hard part of, in a way, hunting whales.

You know, we've got a lot of singles and doubles that keep us growing, you know, quarter to quarter or, you know, filling in the holes sort of created by retail being off. But we're almost, with our whales, we're very much a step function kind of revenue company, so that when a whale turns on, you know, there's an immediate large lift. And we've got some whales that have been waiting on their own internal resources to go live, you know? And now that some of these whales have told us that they've got the resources in place, you know, I'm very much looking forward to it, but it's just a matter of when, and we can't control that.

You know, as we said in the prepared remarks, we are, in a way, at the mercy of our clients running through their whole QA processes and all that kind of stuff. So, you know, you know, that's what I think the story is. Diversification's working, pricing is working, new verticals are filling in for the retail vertical being off.

Speaker 5

Hey, Brian, if I can pop in for a second. I just want to clarify-

Bryan Lewis (CEO)

Yeah.

Jeffrey Ishmael (COO and CFO)

Unless I misheard that, that comment about SaaS revenues being flat over the last 4 quarters. That's actually not the case. When you take a look going back at least to Q2 of last year, I mean, we had an average of 14% growth. I mean, this is the first quarter where we've actually shown a flat quarter year-over-year, and as Brian mentioned, primarily attributed to what's happening in the retail channel. But, you know, we were in the, we were in the teens, the mid of 2023, and then, you know, getting into like 9% on Q1. But, you know, over those last 4 quarters, it was 14%. This is the first quarter that we've really seen the effect of what's happening out in retail.

Bryan Lewis (CEO)

Yeah. Thanks, again.

Speaker 5

Okay. Thank you. Jeff, just one more, if I may. Could you give us any sense of the SaaS revenue going forward for the next two quarters? Any color that will help our models here will also be helpful.

Bryan Lewis (CEO)

Yeah, we never given revenue guidance, if that's what you're looking for.

Speaker 5

Well, yeah, but I'm just looking for some color. Given that you said before that our SaaS revenue will reaccelerate for the second half, are you still expecting that reacceleration to happen?

Bryan Lewis (CEO)

You know, here's what I'd say, I can't predict the economy, right? You know, if we're in the same economic place with retail as we were last year, I'd say that things certainly would be accelerating. What I am, you know, saying is, you know, other market verticals other than retail are accelerating. It is now just a matter of, can they offset what is going on in the retail world? And, you know, I'm far from an economist, so I can't say that. You know, what I will say is, I know what we're doing in other verticals. I'm happy with it. I like the pricing being higher. You know, we're... You know, new business, right, which I think is important to denote, our new business high prices continues to rise.

We're selling more into different verticals that are, you know, aren't as dependent on the consumer going in and buying, you know, a shirt or whatever it is. You know, I think the things that we're looking at, you know, background checks have to happen, right? Who are you when you're renting your apartment? Has to happen. You know, how do we protect your email account? Has to happen no matter what happens with the economy. We're gonna continue to focus on certainly, our, we're, we're not giving up on retail. That's gonna be, it's a great business for us, will continue to be, and we wanna get as many retailers as we can, 'cause we solve a good problem there. But we're also gonna be focusing on the rest of the market, so that, you know, we're not a one-trick pony when it comes to revenue.

So honestly, a lot depends on the economy. We are executing well on our strategy of going after other verticals, and hopefully, it not only offsets but, you know, increases, you know, any loss of, you know, increases of the revenue, even though we're losing some on retail.

Speaker 5

Sounds good. One quick. You said, pricing was, 11% up year-over-year. Is that right?

Bryan Lewis (CEO)

No, the 11% number that was given out, I think Jeff talked about 10% year-over-year. The 11% was new business, average price per transaction from Q1 to Q2 of this year.

Speaker 5

Got it. Thank you.

Jeffrey Ishmael (COO and CFO)

Yeah, while we always look at the price activity within new business, existing business, what's happening, channel, all that. I'm always presenting it, and the number that I've always referenced over the prior quarters has always been from a macro perspective. So we've never dove into the details of any one particular channel and, you know, price increases.

Bryan Lewis (CEO)

Right.

Speaker 5

Got it. Thanks.

Operator (participant)

Thank you. There are no further questions at this time. I'd like to turn the call back to Brian Lewis for closing remarks.

Bryan Lewis (CEO)

Thanks, everybody, for joining us on the call today. I hope you could tell from, you know, just the last question about the new verticals and everything about, you know, how excited I am about the new opportunities that we have for growth. I think diversification is an important part of our strategy, and I think it shows that it's working. You know, there are plenty of market verticals that we can get into because people do need to know who you are. You know, I always say that if I get your email account, I can steal every account you have. You know, now again, this whole thing with apartments, you know, is probably why we keep seeing inbound leads in that area. The market, I think, continues to grow for us.

You know, we continue to enrich our products and our staff and all their capabilities, and I believe we'll remain an industry leader. I look forward to our next call, and thank you all for joining us.

Operator (participant)

This concludes today's conference. You may now disconnect your lines at this time. Enjoy the rest of your day.