Intellicheck, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparative period is Q1 2017. Intellicheck develops identity authentication and age-verification software and related products for retail, law enforcement, government, military, and commercial markets.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $1.062 million | $713 thousand |
| Gross profit and margin | $962 thousand; 90.5% | $603 thousand; 84.6% |
| Operating expenses | $2.043 million | $1.543 million |
| Operating loss | $1.082 million | $940 thousand |
| Net loss | $1.068 million | $937 thousand |
| Loss per share, basic and diluted | $0.07 | $0.09 |
| Adjusted EBITDA (non-GAAP) | $(962) thousand | $(739) thousand |
| Cash used in operations | $865 thousand | $817 thousand |
| Cash and cash equivalents | $7.766 million | $8.010 million at Dec. 31, 2017 |
| Working capital | $6.928 million | Not provided for the comparable date |
At quarter-end, total assets were $17.715 million and stockholders’ equity was $15.689 million. Total liabilities were $2.026 million. The company had no borrowings under its revolving credit facility and reported $2.0 million of unused availability. The facility matured May 22, 2018. Cash declined by $244 thousand during the quarter; $688 thousand of financing cash flow, primarily option exercises, partly offset operating and investing outflows.
Changes versus Q1 2017
- Revenue rose 49%, which management attributed primarily to higher commercial sales. Invoiced orders increased 118%, to $1.114 million from $510 thousand.
- Licensing revenue increased to $690 thousand from $385 thousand; hosted subscription revenue decreased to $193 thousand from $212 thousand. Equipment revenue rose to $122 thousand from $69 thousand.
- Gross margin improved to 90.5% from 84.6%, which management attributed to SaaS growth and product mix.
- Operating expenses increased 32%, primarily due to increased sales and development headcount, related travel, and accelerated R&D. The net loss increased despite higher revenue.
- Cash used in operations increased to $865 thousand from $817 thousand. Adjusted EBITDA loss widened to $962 thousand from $739 thousand.
Outlook, risks, and notable items
- Management expects available cash, expected operating cash, and credit availability to meet working-capital and capital-expenditure needs for at least 12 months. It cautioned that weaker performance or higher expenses could require additional financing or expense reductions; financing may not be available on acceptable terms.
- Two customers accounted for approximately 33% of Q1 2018 revenue and 34% of quarter-end accounts receivable, creating customer-concentration and collection exposure.
- Management reported an accumulated deficit of $111.5 million and operating cash use of $865 thousand for the quarter. The filing states that the company expects resources and revenues to meet requirements for at least 12 months, while noting that failure to obtain financing or reduce expenses if needed could adversely affect continued operations.
- Severance liability was $396 thousand, including $317 thousand current and $79 thousand long-term. This relates to former CEO William Roof’s separation arrangement, which provides for $500 thousand in cash payments over 20 months, plus certain benefit-premium reimbursements. The company also disclosed a severance agreement for CFO and Interim CEO Bill White.
- Intellicheck adopted ASC 606 on January 1, 2018 using the modified retrospective method; it reported no opening retained-earnings adjustment and no change to revenue recognition, but expanded disclosures. Comparative results were not restated.
- Approximately $11 million of federal and New York net operating loss carryforwards were available at December 31, 2017; the company recorded a full valuation allowance on deferred tax assets. NOLs expire from 2018 through 2037 if unused.
- The company reported no material legal proceedings and no goodwill or intangible-asset impairment charges. It identified adverse economic conditions and reduced business or consumer spending as risks.
- Disclosure controls were concluded effective as of March 31, 2018; no material change in internal control over financial reporting was reported during the quarter.
Investor verification priorities
- Check whether the revolving credit facility was renewed, replaced, or repaid after its May 22, 2018 maturity.
- Track revenue growth and conversion of invoiced orders into recognized revenue, particularly commercial sales, licensing, and subscription performance.
- Monitor operating-expense growth, cash burn, and progress toward management’s stated 12-month liquidity expectation.
- Assess customer concentration, receivable collections, and the amount and timing of deferred revenue and remaining performance obligations.
- Review leadership succession and the remaining severance obligations, and assess dilution from options, warrants, and restricted stock units.