Intellicheck, Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Intellicheck provides identity authentication and age-verification software and related products for retail, law enforcement, government, military, and commercial customers. Financial statements are unaudited.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $1.001 million | $0.951 million | $2.063 million | $1.664 million |
| Gross profit | $0.919 million | $0.747 million | $1.881 million | $1.350 million |
| Gross margin | 91.8% | 78.5% | 91.1% | 81.1% |
| Operating expenses | $2.063 million | $1.847 million | $4.106 million | $3.391 million |
| Net loss | $1.100 million | $1.099 million | $2.168 million | $2.035 million |
| Adjusted EBITDA (non-GAAP) | $(1.018) million | $(0.902) million | $(1.980) million | $(1.641) million |
- Basic and diluted loss per share was $0.07 in Q2 and $0.14 for the first half, versus $0.10 and $0.19, respectively, in 2017.
- First-half operating cash use was $2.128 million; investing cash use was $0.107 million; financing provided $0.688 million, primarily from option exercises. Cash declined $1.548 million to $6.463 million.
- At June 30, cash was $6.463 million, working capital $5.866 million, total assets $16.315 million, and stockholders’ equity $14.653 million. No borrowings were outstanding on the $2.0 million revolving facility.
- No long-term borrowings were reported. The credit facility is secured by deposits, bears interest at the bank money-market rate plus 3%, and matures May 22, 2019.
Changes and management commentary
- Revenue increased 5% year over year in Q2 and 24% for the first half. Management attributed growth primarily to commercial sales, partly offset by lower Defense ID sales.
- Management attributed higher gross margins mainly to increased SaaS revenue; it cited SaaS revenue increases of 107% in Q2 and 114% for the first half.
- Operating expenses rose 12% in Q2 and 21% in the first half, reflecting additional sales and development staffing, travel, marketing, and research and development. First-half net loss widened year over year.
- Licensing revenue increased substantially in the first half, while equipment and non-recurring services revenue declined. Revenue recognized over time was $1.863 million for the first half, compared with $1.349 million a year earlier.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method; management reported no change to revenue recognition and no opening retained-earnings adjustment.
Outlook, risks, and contingencies
- Management expects cash, anticipated operating cash flows, 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 availability and terms are not assured. No specific revenue or earnings guidance was provided.
- Two commercial identity customers represented approximately 34% of Q2 revenue and 33% of first-half revenue; the two customers together accounted for 36% of accounts receivable at June 30.
- The company reported a $112.6 million accumulated deficit and approximately $11 million of tax net operating loss carryforwards, with a full valuation allowance on deferred tax assets. NOLs expire from 2018 through 2037 if unused.
- Goodwill was $8.102 million. No goodwill or intangible-asset impairment was recorded in the first half; management planned its annual goodwill impairment test for Q4 and noted that future impairment could affect results.
- Accrued expenses included $316,812 of severance for a former executive. A separate former CEO separation arrangement provides for $500,000 in aggregate payments over 20 months; the company accounted for those payments as severance at separation.
- The filing reports no material legal proceedings, no off-balance-sheet financing arrangements, and effective disclosure controls. It identifies economic weakness and reduced consumer or business spending as risks.
Important facts to verify
- Confirm the cash-flow figure: the cash-flow statement reports first-half operating cash use of $2,127,580, while a note states $2,127,444.
- Reconcile the June 30 share counts: the balance sheet reports 15,625,329 shares, while the stockholders’ equity statement reports 15,625,239; the filing separately reports 15,632,196 outstanding at August 14.
- Monitor customer concentration, commercial-sales momentum, SaaS growth, and the company’s cash burn against its 12-month liquidity outlook.
- Assess the potential effect of goodwill impairment, executive-related payments, and any future financing or expense reductions.