Intellicheck, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Intellicheck develops identity-verification and fraud-prevention solutions for commercial, banking, government, military, and law-enforcement markets. Dollar figures below are in thousands unless stated otherwise.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $4,012 | $4,831 | $11,415 | $12,491 |
| Gross profit / margin | $3,654 / 91% | $3,321 / 69% | $10,377 / 91% | $9,291 / 74% |
| Operating expenses | $4,378 | $4,346 | $13,667 | $15,793 |
| Operating loss | $(724) | $(1,025) | $(3,290) | $(6,502) |
| Net loss | $(724) | $(1,026) | $(3,290) | $(6,486) |
| Loss per share, diluted | $(0.04) | $(0.06) | $(0.17) | $(0.35) |
| Adjusted EBITDA (non-GAAP) | $75 | $(272) | $(1,313) | $(369) |
Q3 SaaS revenue was $3,970, up 22% year over year; nine-month SaaS revenue was $11,249, up 22%. Excluding equipment sales, revenue increased 18% in Q3 and 14% for the nine-month period. Equipment revenue fell sharply: $39 versus $1,470 in Q3 and $155 versus $2,932 for the nine months. Gross margin improvement primarily reflects the lower mix of lower-margin equipment sales; excluding equipment, the company reported gross margins of 92% in both periods in 2022 versus 93% in 2021.
Cash, liquidity, and debt
- Cash and cash equivalents were $11,775 at September 30, 2022, down from $13,651 at December 31, 2021. Working capital was $9,153.
- Operating activities used $1,711 cash in the first nine months of 2022, versus $407 provided in 2021. Investing activities used $165; financing activities provided no cash. Cash decreased $1,876 overall.
- The company reported no debt outstanding. Its revolving facility provides up to $2,000, subject to collateral limitations; the filing reports the full $2,000 available at quarter-end.
- Management expects available cash, operating cash generation, and credit availability to cover working-capital and capital-expenditure needs for at least 12 months from filing. The company also says additional financing may be pursued for growth or other needs, with no assurance it can obtain funds on acceptable terms.
Changes, outlook, and notable matters
- Revenue declined 17% in Q3 and 9% year to date, mainly because equipment sales were lower. SaaS growth partly offset the declines.
- Nine-month operating expenses decreased 13%, primarily because 2021 included higher stock-based compensation from liability-award remeasurement. Q3 expenses rose 1%, with personnel, professional-fee, and marketing costs cited as drivers.
- No specific revenue, earnings, or cash-flow guidance was provided. Management noted that COVID-19 could continue to affect customers and results, and that the duration and effects of future outbreaks remain uncertain.
- Risk disclosures also cite economic conditions and the Ukraine conflict, including possible macroeconomic effects and cyberattack risks. The company says it has no operations in Russia or Ukraine and is not currently aware of being a likely cyberattack target.
- Three customers represented approximately 51% of Q3 revenue and 52% of nine-month revenue; those customers, together with two others, represented 70% of receivables at September 30.
- Management concluded disclosure controls were ineffective because of a material weakness involving stock-based compensation, shares surrendered for tax withholding, and calculation of shares outstanding and weighted-average shares. The company planned to outsource stock-plan administration and engage a professional-services firm to support remediation.
- A $1,244 liability for shares withheld remained on the balance sheet; the filing says payment to affected individuals was being arranged and expected in Q4 2022. No material legal proceedings were reported.
- No goodwill or intangible-asset impairment was recorded for the periods presented. The company planned its annual goodwill impairment test for Q4 2022.
Important facts for investors to verify
- Whether SaaS growth continues and offsets weaker equipment revenue, and how the changing sales mix affects reported margins.
- Cash burn, progress toward operating cash-flow improvement, and the assumptions underlying management’s 12-month liquidity assessment.
- Remediation of the material weakness, including whether outsourced stock-plan controls address the identified accounting and share-count issues.
- Customer concentration and the effect of any changes in major customer activity or payment patterns.
- The status and settlement of the $1,244 share-withholding liability.
- The filing gives inconsistent net-operating-loss figures: the tax note reports approximately $23.4 million at December 31, 2021, while a later MD&A passage reports approximately $18.0 million. Investors should verify the correct amount and applicable expiration details.