Intellicheck, Inc. — FY 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also presents unaudited fourth-quarter results; this is an annual report, not a standalone quarterly filing. Intellicheck develops identity authentication and threat-identification products for commercial, government, military and law-enforcement markets, including Retail ID, Age ID, Law ID and Defense ID. Its offerings include subscription-based software and hardware/software solutions.
Key financial results and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $4.433 million | $3.598 million |
| Gross profit / margin | $4.047 million / 91% | $3.076 million / 85% |
| Operating loss | $4.093 million | $6.080 million |
| Net loss | $3.964 million | $6.021 million |
| Basic and diluted loss per share | $0.26 | $0.48 |
| Adjusted EBITDA (non-GAAP) | Loss of $3.661 million | Loss of $3.857 million |
| Cash used in operating activities | $4.221 million | $3.745 million |
Revenue rose 23%, while gross margin improved to 91%. Management said it expects margins to normalize in the 85%–90% range. SaaS revenue, as described in MD&A, increased 63% to $2.696 million. Research and development expense rose 52% to $2.904 million; selling, general and administrative expense fell 11% to $5.236 million. FY 2017 included a $1.375 million intangible-asset impairment; none was recorded in 2018.
Fourth quarter: Revenue was $1.330 million versus $967,000 in Q4 2017. Net loss was $664,000 versus $2.910 million; Q4 2017 included the substantial impairment charge. Q4 2018 loss per share was $0.04 versus $0.19.
At year-end, cash was $4.376 million, working capital was $4.244 million, total assets were $14.461 million and stockholders’ equity was $12.920 million. Cash declined $3.634 million during 2018. The company had no borrowings on its $2 million revolving facility at year-end; it replaced the bank facility in February 2019, with the full $2 million available and no amount drawn as of March 21, 2019. Total liabilities were $1.541 million. The company reported an accumulated deficit of $114.386 million.
Changes versus the prior comparable period
- Revenue growth was primarily driven by higher commercial revenue, partly offset by lower Defense ID revenue.
- Hosted subscription services revenue increased to $2.226 million from $1.580 million; licensing revenue increased to $1.462 million from $1.270 million.
- Gross profit grew faster than revenue, reflecting higher SaaS revenue and product mix.
- Operating loss narrowed, partly because 2017 included the intangible impairment. R&D investment increased, reflecting more development staff and accelerated development efforts.
- Operating cash use increased to $4.221 million from $3.745 million. 2017 financing cash flow benefited from an $8.513 million net public-offering raise; 2018 financing inflow was $688,000, primarily from option exercises.
- Top-ten customers represented approximately 52% of revenue, compared with 57% in 2017. The filing also reports that two customers accounted for approximately 31% in 2018.
Outlook, risks and notable items
Management expected available cash, operating cash flows and the revolving facility to fund working capital and capital expenditures for at least the next 12 months. It noted that weaker-than-expected performance or higher expenses could require additional financing or expense reductions; additional financing is not assured. No formal revenue or earnings guidance is provided.
- Continuing losses and cash burn: The company has a long history of losses and expects further expenditures to support growth.
- Customer concentration and sales cycles: Reliance on a limited number of customers and lengthy retail and government sales, procurement and implementation cycles may make revenue uneven.
- Government and data access: Products depend on government and law-enforcement reference data; Defense ID installations may require site-specific authority to operate.
- Security, privacy and regulation: Data breaches, changing restrictions on electronic ID-data capture, or noncompliance could cause liability, costs or lost business.
- Competition and execution: Rapid technology change, product defects, growth-management challenges and reliance on a limited group of hardware suppliers may affect results.
- Asset valuation: Goodwill was $8.102 million, with no impairment recorded in 2018 or 2017. The 2017 intangible impairment followed projected customer losses and a marketing-strategy shift.
- Other items: The company adopted ASC 606 in 2018 with no opening retained-earnings adjustment or stated change to revenue recognition. Lease accounting adopted January 1, 2019 was expected to add approximately $266,000 in right-of-use assets and lease liabilities. No material adverse legal proceedings were reported. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether commercial growth and subscription revenue can continue to offset weaker Defense ID revenue, and whether gross margins move toward management’s stated 85%–90% range.
- Cash runway and operating cash use, including whether the company can meet its 12-month liquidity expectation without additional capital.
- Customer concentration: the filing cites top-ten concentration of 52% and gives differing descriptions of two-customer concentration (approximately 31% in the financial-statement note and approximately 30% in the risk discussion).
- The exact 2018 operating-cash-flow figure: the cash-flow statement reports $4.221 million used, while the liquidity note gives $4.221 million with a slightly different exact figure.
- Potential dilution and equity compensation: 1.072 million options were outstanding at year-end, and 746,103 plan shares remained available for future issuance.
- Goodwill and remaining intangible-asset carrying values, and the sensitivity of future impairment tests to financial performance and share price.