Intellicheck, Inc. — FY 2017 Form 10-K
Business context and period: The filing covers the fiscal year ended December 31, 2017, with 2016 as the comparable year. Intellicheck develops identity authentication and access-control software and systems for commercial, government, and military customers, including SaaS offerings. Its products read and verify encoded information on government-issued identification.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $3.598 million | $3.839 million |
| Gross profit / margin | $3.076 million / 85% | $3.070 million / 80% |
| Operating loss | $6.080 million | $5.750 million |
| Net loss | $6.021 million | $5.735 million |
| Net loss per share, basic and diluted | $0.48 | $0.58 |
| Adjusted EBITDA loss (non-GAAP) | $3.857 million | $4.379 million |
| Cash used in operating activities | $3.745 million | $4.240 million |
At year-end 2017, cash was $8.010 million, working capital was $7.340 million, total assets were $17.882 million, total liabilities were $1.873 million, and stockholders’ equity was $16.009 million. No borrowings were outstanding on the revolving credit facility; stated unused availability was $2.0 million. The facility was due to mature May 22, 2018. The company reported no other debt balance in the provided filing text.
Changes versus 2016
- Revenue declined 6%, primarily due to lower commercial and Defense ID sales. Identity Systems revenue was $3.584 million, down 6%.
- Gross profit was nearly flat, but gross margin rose to 85% from 80%, attributed to more SaaS revenue and fewer lower-margin equipment sales.
- Operating expenses increased 4% to $9.157 million, including a $1.375 million intangible-asset impairment charge. SG&A fell 9% and R&D fell 20%.
- Net loss widened by about $286,000. Adjusted EBITDA loss improved, but remains a non-GAAP measure and should be considered alongside GAAP results.
- Operating cash use improved by about $495,000. Cash increased by $4.918 million, primarily reflecting financing proceeds, including a 2017 public offering of 4,168,750 shares. Shares outstanding rose from 10.719 million at year-end 2016 to 15.009 million at year-end 2017.
- Year-end backlog fell to approximately $28,000 from $133,000.
Outlook, commentary, and risks
- Management said available cash, expected operating cash flows, and credit availability should cover working-capital and capital-expenditure needs for at least 12 months. No quantified revenue or earnings guidance was provided. The company said weaker-than-expected performance or higher expenses could require additional financing or expense reductions.
- The 2017 impairment reflected projected revenue losses as certain customers moved to another platform and a change in 2018 marketing strategy. The company also shortened the remaining useful life of Defense ID intangible assets to two years. Goodwill of $8.102 million was not impaired.
- Customer concentration is material: the top ten customers generated about 57% of 2017 revenue, and two commercial customers together accounted for 26%. The company also relies on a limited group of suppliers and access to government databases and installation authorizations.
- Other disclosed risks include continued losses and cash burn, lengthy commercial and government sales cycles, competitive and technology change, privacy or security breaches, regulation of ID-data capture, and possible dilution or difficulty obtaining future capital. The company reported no legal or regulatory proceedings expected to have a material adverse effect.
- Quarterly Q4 2017 revenue was $967,000 versus $734,000 in Q4 2016; Q4 net loss was $2.910 million versus $1.090 million. The filing’s annual impairment charge and executive transition costs are relevant context for the 2017 results.
Important facts for investors to verify
- Whether revenue declines, customer platform departures, and the sharp backlog reduction persist or reverse.
- Whether the 12-month liquidity outlook holds given recurring operating cash use, and the status and terms of any replacement or extension of the May 2018 credit facility.
- The future revenue and cash-flow implications of the 2017 intangible impairment and shortened Defense ID asset lives.
- Customer concentration, renewal and retention trends, and continued access to government databases and required military authorizations.
- Share dilution and outstanding equity awards: the filing reported 1.637 million options, warrants, and rights outstanding under approved plans and 471,801 warrants outstanding.
The independent auditor gave an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2017; the auditor did not express an opinion on internal-control effectiveness.