Intellicheck, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Intellicheck develops identity-verification products, including ID Check, for fraud prevention in retail, banking, and other markets.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $4.80 million | $1.84 million | $7.66 million | $4.96 million |
| Gross profit | $3.33 million | $1.63 million | $5.97 million | $4.05 million |
| Gross margin | 69.4% | 88.6% | 77.9% | 81.8% |
| Operating expenses | $4.07 million | $2.40 million | $7.78 million | $4.80 million |
| Net loss | $738,000 | $760,000 | $1.80 million | $734,000 |
| Adjusted EBITDA (non-GAAP) | $(46,000) | $(619,000) | $(98,000) | $(474,000) |
Q2 revenue increased 160% year over year, largely due to approximately $1.4 million of hardware sales; SaaS revenue rose 94% to $3.23 million. For the first half, revenue increased 55%, and SaaS revenue rose 54% to $6.01 million. Management cited growth in financial services and retail. Hardware mix, which generally carries lower margins, reduced reported gross margin; excluding hardware and related costs, management reported gross margins of 93.3% in Q2 and 93.1% for the first half.
Cash, liquidity, and debt: At June 30, cash was $11.94 million, working capital was $13.29 million, total assets were $25.39 million, and stockholders’ equity was $22.11 million. Operating cash use was $1.08 million for the first half, versus $262,000 in the prior-year period; investing activities used $182,000. Financing provided $76,000, compared with $11.61 million in the prior period, which included a public stock offering. No borrowings were outstanding on the $2 million Citibank revolving facility; the full $2 million was available. The filing reports no other outstanding debt.
Changes, outlook, and risks
- Operating expenses rose 69% in Q2 and 62% in the first half, primarily due to higher stock-based compensation, increased headcount, and expanded R&D. First-half stock-based compensation was $1.63 million, compared with $190,000 in 2020.
- Management said cash, expected operating cash flows, and available credit should meet working-capital and capital needs for at least 12 months from filing. No specific revenue or earnings guidance was provided. The company may seek additional capital; access and terms are not assured.
- COVID-19 continued to create uncertainty, including possible effects from variants, renewed restrictions, customer spending, and sales and implementation activity. Management noted increased SaaS revenue despite pandemic-related uncertainty.
- Revenue and receivables are concentrated: two customers accounted for approximately 62% of Q2 revenue and 70% of quarter-end accounts receivable. This concentration could amplify customer-specific effects.
- The company reported an approximately $17 million tax NOL at December 31, 2020, with federal and state NOLs beginning to expire in 2021; it maintains a full valuation allowance on deferred tax assets.
- The filing contains a material inconsistency: the financial statements report a first-half net loss of $1.80 million, while MD&A incorrectly says the company generated net income of $1.798 million. The financial-statement figures and accompanying cash-flow statement show a net loss.
- No material legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal controls over financial reporting during the quarter.
Investor verification points
- Confirm the first-half earnings description and figures given the conflict between MD&A and the financial statements.
- Assess the sustainability and profitability of SaaS growth separately from lower-margin hardware revenue.
- Monitor customer concentration, accounts-receivable collection, and operating cash use.
- Review stock-based compensation, potential dilution, and the company’s ability to fund growth without additional capital.
- Evaluate COVID-19 exposure and the timing and usability of expiring tax NOLs.