Intellicheck, Inc. — Q3 2020 Form 10-Q
Business and period: Identity-authentication and threat-identification technology provider. This unaudited report covers the three and nine months ended September 30, 2020, compared with the same 2019 periods; balance-sheet comparisons are with December 31, 2019.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $2.699 million | $1.930 million | $7.656 million | $4.767 million |
| Gross profit / margin | $2.405 million / 89.1% | $1.671 million / 86.6% | $6.460 million / 84.4% | $4.097 million / 85.9% |
| Operating expenses | $2.380 million | $2.252 million | $7.179 million | $6.816 million |
| Operating income (loss) | $25,419 | ($580,524) | ($719,445) | ($2.719 million) |
| Net income (loss) | $32,412 | ($568,230) | ($701,259) | ($2.655 million) |
| Adjusted EBITDA, non-GAAP | $168,963 | ($456,939) | ($305,393) | ($2.029 million) |
Q3 revenue grew 40%; nine-month revenue grew 61%. SaaS revenue was $2.451 million in Q3, up 57%, and $6.361 million for nine months, up 79%. Management attributed growth primarily to commercial SaaS. Q3 gross margin improved with SaaS growth; the nine-month margin declined as hardware sales, which carry lower margins, increased. Operating expenses rose 6% in Q3 and 5% year to date, mainly due to personnel costs and accrued incentive plans. Nine-month basic and diluted loss per share was $0.04, versus $0.17 in 2019; Q3 earnings per share rounded to $0.00.
Cash, liquidity, and capital
- At September 30, cash was $12.812 million, working capital $12.737 million, total assets $23.906 million, and stockholders’ equity $20.794 million. Cash was $3.351 million at year-end 2019.
- For the first nine months, operating cash use was $311,000, compared with $2.090 million in 2019. Investing used $408,000, including a $400,000 software-license purchase; financing provided $10.180 million. Cash increased by $9.461 million.
- A June public offering of 1,769,230 shares at $6.50 generated approximately $10.57 million net proceeds as reflected in the cash-flow statement. The offering materially increased the share count; 18,390,229 shares were outstanding at September 30.
- Total liabilities were $3.112 million, including $806,100 under a 1% unsecured PPP/EIDL-related note: $44,467 current and $761,633 long-term. The PPP portion may qualify for forgiveness subject to conditions; forgiveness had not been reported. The lender extended the start of repayment from November 2020 to September 2021.
- No borrowings were outstanding on the Citibank revolving facility, with $2 million reported as available. Management expected available cash, operating cash generation, and credit availability to cover working-capital and capital-expenditure needs for at least 12 months.
Outlook, risks, and other notable items
- No specific revenue or earnings guidance was provided. Management said COVID-19 had disrupted operations and could continue to affect customers, demand, sales activity, and financial results; the magnitude and duration were not predictable.
- Customer concentration is significant: two customers represented approximately 46% of Q3 revenue and 37% of nine-month revenue, and together accounted for 54% of accounts receivable at September 30.
- Management reported no goodwill or intangible-asset impairment in the period and planned its annual goodwill impairment test for Q4. Goodwill was $8.102 million. Deferred tax assets remained subject to a full valuation allowance.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during Q3.
- Management noted the possibility of future capital raising for expansion or other needs, with no assurance that financing would be available on acceptable terms. The company also had a universal shelf registration statement effective June 2020.
Important facts for investors to verify
- Whether SaaS growth continues and whether customer concentration changes, including renewal and collection risk.
- The status and eventual forgiveness or repayment of the PPP note, and the actual timing of any repayment obligations.
- Cash burn, operating cash-flow trends, and whether management’s stated 12-month liquidity expectation remains supported.
- Potential dilution from equity compensation and any future use of the shelf registration; compare the offering proceeds reported across the filing, which are described as approximately $10.57 million net in the cash-flow and equity reporting.
- COVID-19 effects on customer spending and operations, and the results of the Q4 goodwill impairment assessment.