Intellinetics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The company provides document-management software and services and document-conversion, storage, and retrieval services. Results include Graphic Sciences and CEO Image, acquired in 2020; comparisons with 2020 are affected by partial-period inclusion of those businesses and pandemic-related disruptions.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2.91 million | $1.84 million | $5.54 million | $3.05 million |
| Gross profit / margin | $1.81 million / 62% | $1.17 million / 63% | $3.42 million / 62% | $1.92 million / 63% |
| Operating income (loss) | $306,000 | ($166,000) | $416,000 | ($997,000) |
| Net income (loss) | $192,000 | ($282,000) | $1.04 million | ($929,000) |
| EPS, basic / diluted | $0.07 / $0.06 | ($0.10) / ($0.10) | $0.37 / $0.33 | ($0.46) / ($0.46) |
Q2 revenue increased 58% year over year; first-half revenue increased 82%. Professional services was the largest revenue source, at $1.90 million in Q2 and $3.55 million for the first half. SaaS revenue rose 51% in Q2 and 47% year to date. First-half net income included an $845,000 gain from forgiveness of the PPP loan; operating income was positive in both 2021 periods.
For the six months, operating cash flow was $587,000, investing cash flow was negative $400,000, and financing cash flow was negative $955,000, principally reflecting earnout payments. Cash declined by $767,000 to $1.14 million. Management separately reported Q2 operating cash flow of $260,251.
Balance sheet, debt, and liquidity
At June 30, 2021, current assets were $2.97 million and current liabilities were $3.35 million, producing a $380,000 working-capital deficit. Total assets were $11.24 million, total liabilities $8.95 million, and stockholders’ equity $2.29 million. Outstanding notes had $2.0 million principal: 12% subordinated notes due February 2023. Operating lease liabilities totaled $3.91 million, and earnout liabilities totaled $1.57 million. The company paid $955,000 in earnouts during June. It also had a $351,854 warehouse-racking commitment, of which $300,276 had been purchased by quarter-end.
Management said available capital and expected operating cash flow should cover ordinary-course needs, earnouts, capital spending, and debt service for at least 12 months. This assessment depends on operating cash flow, acquisition integration, customer retention and growth, and the effects of COVID-19.
Changes, outlook, and risks
- Growth primarily reflects the acquisitions and comparison against Q2 2020 Michigan and Ohio stay-at-home restrictions; management estimated those restrictions reduced Q2 2020 Document Conversion revenue by approximately $655,000.
- Document Conversion generated $2.12 million of Q2 revenue, versus $791,000 for Document Management. The State of Michigan represented 45% of Q2 revenue and 48% of first-half revenue. Government contracts were approximately 59% and 64% of revenue, respectively.
- Gross margin declined one percentage point to 62%, mainly due to a greater professional-services mix. Storage and retrieval margins also fell amid warehouse consolidation, labor, and subcontractor costs.
- COVID-19 continued to create demand uncertainty, particularly from government and small-business spending and the State of Michigan’s operating levels. The company cited expense controls, cash preservation, remote-work measures, and investment in digital offerings. It provided no specific revenue or earnings guidance.
- Other notable exposures include customer concentration, labor-cost and minimum-wage increases, acquisition integration, future earnout estimates, and the cash demands of leases and warehouse expansion. The company reported no material legal proceedings and no material change to its previously disclosed risk factors other than the added labor-cost risk.
Most important facts for investors to verify
- Whether operating cash generation can sustain liquidity despite the working-capital deficit, lower cash balance, and upcoming debt and earnout obligations.
- How much reported growth reflects continuing demand versus acquisitions and recovery from pandemic-disrupted comparisons, especially given State of Michigan concentration.
- Whether warehouse consolidation and racking investments improve storage economics, and how labor and subcontractor costs affect margins.
- The assumptions and timing behind remaining earnouts and the company’s stated 12-month liquidity outlook.
- The $48,454 of disclosed remaining performance obligations relates only to SaaS and maintenance contracts with terms over one year; it excludes contracts of one year or less.