Intellinetics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 16, 2022. Intellinetics provides document-management software and document-conversion, storage, and retrieval services through two segments. Results are unaudited.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $2.704 million | $2.635 million |
| Gross profit / margin | $1.632 million / 60% | $1.605 million / 61% |
| Operating income | $92,475 | $110,733 |
| Net income (loss) | $(20,126) | $842,772 |
| Operating cash flow | $476,171 | $326,869 |
| Capital expenditures | $56,043 | $231,699 |
- Revenue increased 3% year over year, while operating income declined 16%. The Q1 2022 net loss compares with prior-year net income that included an $845,083 gain from forgiveness of the PPP loan and interest.
- Document Management revenue grew to $914,950 from $735,818; Document Conversion revenue declined to $1.789 million from $1.899 million.
- Cash was $2.173 million at March 31, 2022. Current assets were $3.909 million versus current liabilities of $5.427 million, a $1.518 million working-capital deficit. Stockholders’ equity was $2.722 million.
- The 2020 Notes had $2.0 million principal outstanding, bearing 12% interest and due February 2023. Their net carrying amount was classified as current; interest expense was $112,601 for the quarter.
Changes, outlook, and risks
- Management attributed modest revenue growth to Document Management strength, particularly SaaS, which rose 33% to $431,221. Document Conversion was affected by Omicron-related workflow and customer-demand slowdowns in Michigan. Professional-services revenue fell 4%.
- Gross margin declined to 60% from 61%, reflecting unfavorable conversion projects and inflation-related labor costs. Sales and marketing expense rose 21%; general and administrative expense fell 10%.
- No numerical full-year guidance was provided. Management said available resources, expected operating cash flow, and potential financing were expected to cover ordinary-course needs for at least 12 months, including debt service and earnouts. It cautioned that operating cash flow alone might not cover obligations in the first and second quarters of 2023, and discussed possible refinancing or other debt modifications.
- After quarter-end, on April 1, the company raised $5.741 million gross through 1,242,588 shares and issued $2.965 million of 12% subordinated notes due 2025. It acquired substantially all Yellow Folder assets for approximately $6.5 million cash, subject to a working-capital adjustment; acquisition accounting was incomplete when the filing was submitted. The offering also involved placement-agent fees and warrants.
- On April 14, the company granted options for 220,587 shares at $6.08, vesting over three years; approximately $1.2 million of compensation expense is expected over the vesting period.
- Risks include dependence on a few customers and government contracts: the State of Michigan and Rocket Mortgage represented 40% and 10% of Q1 2022 revenue, respectively; government contracts represented approximately 60%. Management also cited COVID-19 disruption, inflation, customer-budget uncertainty, acquisition integration, and fluctuating results. It reported no material change to the risk factors in its 2021 Form 10-K.
Important facts for investors to verify
- Whether Michigan customer activity and Document Conversion demand recovered after the reported Omicron-related slowdown.
- Yellow Folder’s final purchase-price allocation, results, cash generation, and integration costs, to be disclosed in a later filing.
- Post-offering cash, net debt, dilution, placement costs, and the company’s ability to meet 2023 note and earnout obligations.
- Whether SaaS growth and margins can offset weaker conversion revenue and inflation-related cost pressure.
- Customer concentration, especially the State of Michigan, and the status of receivable collections from major customers.