Intellicheck, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also presents unaudited fourth-quarter results. Intellicheck develops identity authentication and threat-identification software and systems for commercial and government customers, with revenue increasingly generated through hosted subscriptions and per-scan services.
Financial performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $7.664 million | $4.433 million |
| Gross profit / margin | $6.668 million / 87% | $4.047 million / 91% |
| Operating expenses | $9.316 million | $8.140 million |
| Operating loss | $2.648 million | $4.093 million |
| Net loss | $2.549 million | $3.964 million |
| Basic and diluted loss per share | $0.16 | $0.26 |
| Cash used in operating activities | $1.841 million | $4.221 million |
Revenue increased 73%, primarily from commercial business; Defense ID revenue declined. SaaS revenue rose 126% to $6.102 million. Gross margin fell four percentage points, which management attributed mainly to higher hosting costs. SG&A rose 8% and R&D rose 26%; R&D spending was $3.657 million. Adjusted EBITDA, a non-GAAP measure, was a loss of $1.813 million versus a loss of $3.661 million.
Fourth quarter: Revenue was $2.897 million versus $1.330 million in Q4 2018; gross profit was $2.571 million versus $1.239 million. Intellicheck reported operating income of $72,000 and net income of $106,000, compared with operating and net losses of $714,000 and $664,000, respectively, in the prior-year quarter. Diluted earnings per share were $0.01 versus a loss of $0.04.
Liquidity, debt, and balance sheet
At year-end, cash was $3.351 million, working capital $3.178 million, total assets $13.997 million, total liabilities $2.248 million, and stockholders’ equity $11.750 million. Cash declined $1.025 million during the year. Investing activities provided $22,000; financing activities provided $794,000, largely from warrant and option exercises.
No borrowings were outstanding on the Citibank revolving facility at December 31, 2019; reported availability was $2.0 million, subject to facility terms and collateral. Management expected available cash, operating cash flows, and the facility to meet working-capital and capital needs for at least 12 months from filing. The company reported no material legal proceedings and no off-balance-sheet financing arrangements.
Changes, outlook, and risks
- Growth was driven by commercial SaaS, while Defense ID revenue decreased. Operating cash use improved year over year, but the company remained loss-making for the full year.
- Management’s stated strategy is to expand commercial and government identity solutions, grow SaaS and licensing arrangements, develop products and partnerships, and pursue additional markets. The filing gives no quantified revenue or earnings guidance.
- Customer concentration increased: the top ten customers represented approximately 66% of 2019 revenue versus 52% in 2018; three customers accounted for 39% of revenue. Loss of a major customer could materially affect results.
- Key risks include continued losses and cash use; lengthy commercial and government sales cycles and contract awards; dependence on government identification reference data and Defense Department authorizations; competition; privacy, regulatory, and cybersecurity exposure; and reliance on a limited supplier group.
- The filing identifies COVID-19 as a potential risk, including possible customer or retail shutdowns and employee or supply-chain impacts; the effect was uncertain as of filing. The company also notes that additional financing may be needed if performance falls short or expenses exceed expectations.
- Goodwill was $8.102 million, and no impairment was recorded for 2019. Management’s valuation depends on estimates and assumptions. Deferred tax assets were fully offset by a valuation allowance. Approximately $17 million of net operating loss carryforwards were reported.
- The company adopted lease accounting in 2019, recognizing a right-of-use asset and lease liability; it reported no significant effect on operations. It recorded a $400,000 software-license purchase agreement in February 2020, after year-end, including a $300,000 payment obligation due by December 31, 2020.
Important facts for investors to verify
- Whether SaaS growth and the Q4 return to quarterly profitability continued after 2019, and how hosting costs affect gross margins.
- Revenue dependence on the three largest customers and the sustainability of commercial growth amid weaker Defense ID revenue.
- Cash burn, liquidity against management’s 12-month estimate, and the terms and collateral availability of the revolving facility.
- Customer, government-agency, and military authorizations; supplier continuity; and any material cybersecurity, privacy, or COVID-related impacts.
- The filing’s financial statements received an unqualified audit opinion; the auditor stated it was not engaged to audit internal control over financial reporting. Management concluded controls were effective.