Intellinetics, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; compared with FY2020. Intellinetics provides document-management software and document-conversion, storage, and retrieval services. The results include its 2020 acquisitions, Graphic Sciences and CEO Image; FY2021 includes a full year of both businesses, while FY2020 includes partial periods.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $11.46 million | $8.25 million |
| Gross profit / margin | $6.94 million / 60.6% | $4.99 million / 60.5% |
| Operating income (loss) | $0.96 million | $(2.04) million |
| Net income (loss) | $1.36 million | $(2.20) million |
| Basic / diluted EPS | $0.48 / $0.44 | $(0.91) / $(0.91) |
| Operating cash flow | $1.39 million | $0.12 million |
| Capital expenditures | $0.59 million | $0.08 million |
| Cash at year-end | $1.75 million | $1.91 million |
- Revenue grew 39% year over year. Document Management revenue was $3.09 million, up 10%; Document Conversion revenue was $8.37 million, up 54%.
- Revenue mix included professional services of $7.47 million, SaaS of $1.44 million, maintenance of $1.35 million, storage and retrieval of $1.12 million, and software sales of $0.08 million. SaaS revenue increased 37%.
- Operating expenses were $5.98 million versus $7.03 million. FY2020 included $1.55 million of earnout fair-value expense and $0.64 million of transaction costs, compared with $0.14 million and zero, respectively, in FY2021.
- FY2021 net income included an $845,083 gain from forgiveness of the PPP loan. Without that gain, pretax income would have been approximately $513,000; the filing does not present adjusted net income.
- Current assets were $3.68 million and current liabilities were $3.56 million, producing working capital of $126,944. Total liabilities were $9.30 million, including $2.00 million principal on notes and $3.93 million of lease liabilities. The notes’ net carrying amount was $1.75 million.
- Earnout liabilities totaled $1.63 million at year-end. Operating cash flow less capital expenditures was approximately $0.80 million; cash declined by $0.16 million during the year, principally reflecting $0.95 million of earnout payments.
Changes versus FY2020
- The return to profitability and higher operating cash flow reflected increased revenue, lower acquisition-related and earnout valuation expenses, and the full-year contribution of acquired businesses.
- Management attributed revenue growth primarily to acquisition timing and comparison with COVID-19 disruptions in 2020, including an estimated $655,000 reduction in Document Conversion revenue in 2020’s second quarter. Therefore, reported growth is not a like-for-like organic growth measure.
- Gross margin was broadly stable at about 61%. Professional-services and software-related margins improved, while storage and retrieval margins declined to 66% from 70%, partly due to warehouse consolidation, subcontractors, and project mix.
- Interest expense decreased to $452,120 from $637,683. The PPP loan was forgiven in January 2021; the company reported no new borrowing in 2021.
Outlook, risks, and notable items
- No numerical revenue or earnings guidance was provided. Management expects cloud-based software delivery to become a principal software business and described continued investment in sales, reseller channels, marketing, and product integration.
- Management said current capital resources, expected operating cash flow, and potential financing options should cover ordinary-course needs for at least 12 months. It also cautioned that operating cash flow alone may not cover debt and earnout obligations in 2023 and discussed refinancing, extension, or conversion as possible options; no new financing commitment was reported.
- The $2.00 million 12% subordinated notes mature February 28, 2023. Potential earnout payments include up to $1.02 million in Q2 2022 and $0.83 million in Q2 2023, subject to acquisition performance and contract terms.
- Customer concentration is significant: the State of Michigan represented 47% of consolidated revenue in both years and 64% of Document Conversion revenue in 2021. Government contracts accounted for approximately 62% of total revenue in 2021. The Michigan contract was scheduled to run through May 2023, with two one-year extension options.
- Management cited COVID-19 and Omicron-related project slowdowns, Michigan agencies’ continued remote work, inflation and labor-cost pressure, government budget risk, competition, reseller dependence, and customer renewal and cybersecurity risks.
- The company reported an accumulated deficit of $21.6 million and a full valuation allowance against deferred tax assets. It reported no material pending legal proceedings. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an ICFR attestation. The financial-statement audit opinion was unqualified.
Investor verification priorities
- Assess sustainable earnings and cash generation excluding the $845,083 PPP forgiveness gain and considering acquisition-related effects.
- Review the Michigan contract’s renewal options, current work-order volume, customer budgets, and the consequences of its 2023 expiry or nonrenewal.
- Confirm the timing and amount of earnout payments, the 2023 note maturity and covenants, and the feasibility and cost of refinancing.
- Track working capital, receivable collections, and customer concentration; the two largest customers represented 65% and 7% of gross receivables at year-end.
- Evaluate SaaS growth, renewals, segment margins, and whether revenue growth continues as acquisition and COVID-19 comparisons normalize.