Intellicheck, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are with FY2020. Amounts are in thousands of dollars except per-share data, percentages and share counts.
Business context
Intellicheck develops identity-verification and authentication software for commercial, retail, financial and government uses. Its offerings include ID validation, age verification, identity matching and risk scoring, primarily delivered through cloud-based SaaS subscriptions and per-scan services. The company reported one operating and reporting segment.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $16.393 million | $10.735 million |
| SaaS revenue | $12.970 million | $9.373 million |
| Gross profit | $12.882 million | $9.309 million |
| Gross margin | 78.6% | 86.7% |
| Operating expenses | $17.044 million | $9.569 million |
| Operating loss | ($4.162 million) | ($260,000) |
| Net income (loss) | ($4.146 million), or ($0.22) per share | $558,000, or $0.03 per share |
| Cash from (used in) operating activities | $1.116 million | ($19,000) |
| Adjusted EBITDA, non-GAAP | ($925,000) | $329,000 |
- Revenue increased 53%, led by SaaS growth and higher hardware sales. SaaS revenue grew 38%.
- Gross margin declined mainly because hardware sales, which carry lower margins, represented a larger share of revenue. Excluding hardware sales and related costs, gross margin was 93.2%, compared with 92.1% in FY2020.
- Operating expenses rose 78%: selling, general and administrative expenses increased 96% to $11.564 million, and R&D increased 49% to $5.480 million. The company cited higher share-based compensation, personnel and marketing costs. FY2021 equity compensation expense was $3.068 million, versus $409,000 in FY2020.
- Cash increased by $530,000 to $13.651 million. Investing activities used $662,000; financing activities provided $76,000.
- At year-end, working capital was $11.982 million, total assets $25.711 million and stockholders’ equity $21.199 million. Total liabilities were $4.512 million.
- No revolving-credit borrowings were outstanding; the company reported $2.0 million of unused availability, subject to facility terms and collateral limits. The filing reports no other outstanding debt at year-end.
Material changes and unusual items
- The company moved from FY2020 net income to a FY2021 net loss despite substantial revenue growth; operating expenses increased faster than gross profit.
- FY2020 results included a $796,000 gain from forgiveness of a Paycheck Protection Program note. FY2021 included $10,000 of other income from the returned Economic Injury Disaster Loan advance.
- FY2021 operating cash flow benefited in part from increases in accounts payable, accrued expenses and deferred revenue. Deferred revenue, current portion, rose to $1.266 million from $403,000.
- The company introduced a prepaid transaction model in 2021 and estimates unused transactions to recognize breakage revenue over the contract term.
- In November 2021, the company amended its performance-stock-unit plan so that market price became the sole vesting criterion, removing Adjusted EBITDA as a criterion. The amendment resulted in $164,000 of additional share-based compensation expense.
- Goodwill was $8.102 million. The annual impairment test found no impairment, but the auditor identified the goodwill impairment analysis as a critical audit matter because it depended on significant estimates, including growth, margins and discount rates.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management expected available cash, operating cash generation and credit-facility availability to meet working-capital and capital-expenditure needs for at least 12 months from filing. It retained the option to seek additional capital; there is no assurance it could do so on acceptable terms.
- Customer concentration is significant: the top ten customers generated approximately 79% of FY2021 revenue, up from 75% in FY2020. Two customers represented approximately 55% of FY2021 revenue, compared with 41% in FY2020. Three customers represented 65% of year-end receivables.
- COVID-19 had disrupted operations and temporarily reduced customer revenue; management said the future impact remained uncertain. Risks also include long sales and implementation cycles, evolving market acceptance, competition, data-security and privacy exposure, reliance on government reference data, and dependence on a limited group of hardware and service suppliers.
- The company reported an accumulated deficit of $120.523 million and a FY2021 net loss. Its approximately $18.0 million of tax net operating loss carryforwards began expiring in 2021; deferred tax assets were fully offset by a valuation allowance.
- No legal or regulatory proceeding was identified as expected to have a material adverse effect. The company reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an attestation on internal controls.
Important facts for investors to verify
- Whether SaaS growth and customer diversification continue, given the concentration of revenue in two customers.
- Whether operating-cost growth moderates and margins recover as the revenue mix changes; assess the recurring cash impact of compensation and other expenses.
- How much operating cash flow depends on working-capital movements, including accrued expenses and deferred revenue.
- Whether goodwill valuation assumptions remain supportable and how sensitive the impairment analysis is to changes in forecasts, discount rates and market valuation.
- The terms and actual availability of the revolving facility, and whether future growth or contingencies lead to additional financing or shareholder dilution.