Intellicheck, Inc. — Q1 2022 Form 10-Q
Business context and reporting period: Intellicheck develops identity verification and threat identification solutions for commercial, banking, government, military, and law-enforcement customers. This unaudited report covers the three months ended March 31, 2022, compared with Q1 2021. Dollar amounts below are in thousands unless stated otherwise.
Key financial results
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $3,395 | $2,863 |
| Gross profit / margin | $3,079 / 90.7% | $2,642 / 92.3% |
| Operating expenses | $4,547 | $7,281 |
| Operating loss | $(1,468) | $(4,639) |
| Net loss | $(1,468) | $(4,624) |
| Loss per share, basic and diluted | $(0.08) | $(0.25) |
| Adjusted EBITDA, non-GAAP | $(806) | $(51) |
| Cash used in operating activities | $(2,397) | $(471) |
- Revenue grew 19%; SaaS revenue rose 21% to $3,353 and accounted for nearly all revenue. Management attributed the increase primarily to higher commercial SaaS revenue.
- Gross profit increased, but gross margin declined 1.6 percentage points, principally due to higher cloud and web-based support costs. Excluding hardware, gross margin was 91.7% versus 93.0%.
- Operating expenses fell 38%, mainly because Q1 2021 included substantially higher equity-compensation expense. Equity compensation was $592 in Q1 2022 versus $4,545 in Q1 2021. The company’s GAAP net loss narrowed, while Adjusted EBITDA deteriorated to $(806) from $(51).
- Cash and cash equivalents were $11,123 at March 31, 2022, down from $13,651 at year-end 2021. Working capital was $9,657; total assets were $23,450 and stockholders’ equity was $18,938.
- Cash used in investing was $131, primarily for property and equipment; financing cash flow was zero. No borrowings were outstanding under the revolving credit facility, which had $2,000 of reported unused availability. The filing reports no other debt outstanding.
- Current and long-term deferred revenue totaled $1,038 at quarter-end, compared with $1,274 at December 31, 2021. The company recognized $811 of the year-end current deferred-revenue balance in Q1.
Material changes, outlook, and risks
- Management said cash, expected operating cash flows, and credit availability should meet working-capital and capital-expenditure needs for at least 12 months from the filing date. It also noted it may seek additional funding for contingencies or growth, with no assurance of obtaining it on acceptable terms.
- The company disclosed that previously issued statements for Q3 2020, each 2021 quarter, and fiscal years 2020 and 2021 should no longer be relied upon because of errors in accounting for certain option awards. Some awards should have been classified as liabilities and remeasured each reporting period. An administrative error also led to shares withheld for tax obligations not being sold and the equivalent funds not being remitted; the company said it was arranging payment to affected individuals during 2022.
- Management identified material weaknesses in internal controls relating to equity-compensation accounting, shares surrendered for tax obligations, and share-count calculations. Disclosure controls were not effective as of March 31, 2022. Planned remediation included outsourcing equity-plan administration and recordkeeping and engaging professional advisers.
- The 10-Q was filed late. Nasdaq notified the company on May 24, 2022 that it was not in compliance with the timely-filing requirement. The company said it issued a required press release and filed an 8-K on May 31.
- Subsequent to quarter-end, Jeffrey Ishmael was appointed CFO effective May 13, 2022; the departing CFO was pursuing a position outside the identity sector.
- Risks highlighted include COVID-19 effects on customer demand and operations, broader economic weakness, and potential economic and cyber-security effects associated with the conflict in Ukraine. Three customers generated approximately 53% of Q1 revenue; three customers plus another customer represented 63% of quarter-end receivables.
- The company reported no material legal or regulatory proceedings. Goodwill was $8,102; no goodwill or intangible-asset impairment was recorded in Q1.
Important facts for investors to verify
- Review the restated prior-period filings and the full accounting treatment and financial impact of the option-award errors.
- Track remediation of the material weaknesses, including whether outsourced equity-plan controls are implemented and independently effective.
- Assess whether operating cash use, customer concentration, and revenue growth support management’s stated 12-month liquidity outlook.
- Monitor gross-margin pressure from cloud and web-support costs and compare GAAP losses with non-GAAP Adjusted EBITDA.
- Confirm resolution of the Nasdaq filing-compliance notice and payment to individuals affected by the share-withholding administrative error.