Intellicheck, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. Intellicheck develops identity-authentication and threat-identification products for commercial, retail, financial-services, government and military customers. This unaudited report covers the quarter and six months ended June 30, 2020; comparisons are to the corresponding 2019 periods.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $1.842 million | $1.558 million | $4.957 million | $2.837 million |
| Gross profit | $1.632 million | $1.339 million | $4.055 million | $2.426 million |
| Gross margin | 88.6% | 85.9% | 81.8% | 85.5% |
| Operating expenses | $2.402 million | $2.259 million | $4.800 million | $4.564 million |
| Operating loss | $769,398 | $919,742 | $744,864 | $2.139 million |
| Net loss | $760,273 | $873,677 | $733,671 | $2.087 million |
| Basic/diluted loss per share | $0.05 | $0.06 | $0.05 | $0.13 |
For the six months, operating cash use was $262,313, versus $1.597 million in 2019. Investing activities used $110,415, compared with $14,321 provided in 2019; financing activities provided $11.611 million, versus $267,533 in 2019. Cash rose to $14.590 million from $3.351 million at year-end 2019. June 30 working capital was $13.623 million, total assets $25.428 million and stockholders’ equity $22.064 million.
At June 30, total notes payable were $1.106 million, including $656,775 current and $449,325 long-term. No borrowings were outstanding on the $2 million revolving credit facility, which had $2 million of unused availability. The company reported an accumulated deficit of $117.669 million and continued to incur net losses. Adjusted EBITDA, a non-GAAP measure, was negative $618,727 for Q2 and negative $474,356 for the six months.
Material changes versus prior periods
- Q2 revenue grew 18%; six-month revenue grew 75%. Management attributed the increase mainly to commercial customers and continued growth in financial services and retail.
- SaaS revenue increased 49% in Q2 to $1.671 million and 97% for the six months to $3.910 million. Six-month equipment revenue also rose to $836,000 from $188,000.
- Q2 gross margin improved, which management attributed to SaaS growth. Six-month margin declined because of increased hardware sales, which generally carried lower margins.
- Six-month net loss narrowed substantially year over year. Operating expenses increased 5% for the six months, with higher personnel and incentive costs partly offset by lower stock-based compensation.
- A June public offering issued 1,769,230 shares at $6.50 per share. Net proceeds after underwriting discounts and direct offering costs were approximately $10.569 million; the offering increased shares outstanding.
Outlook, risks and notable items
- Management said available cash, expected operating cash and the credit facility should meet working-capital and capital-expenditure needs for at least the next 12 months. It also retained the option to seek additional capital, with no assurance of availability or acceptable terms.
- COVID-19 had disrupted operations, and management said its duration and effects on customer demand, sales, results, cash flows and liquidity could not be predicted. Remote work and reduced travel and in-person customer activity could delay sales or affect productivity.
- The company received $796,100 under the PPP and a $10,000 EIDL advance. The 1% PPP note is repayable within two years, but may be forgiven if applicable conditions are met; no forgiveness was reported in this filing.
- A $400,000 software-license acquisition was recorded as an intangible asset; $100,000 was paid initially and the remaining $300,000 was paid on July 31, 2020. No impairment charges were recorded in the six-month period.
- Four customers accounted for approximately 44% of Q2 revenue and 54% of six-month revenue; they represented 37% of accounts receivable at June 30. This concentration creates exposure to customer demand and payment risk.
- No material legal proceedings were reported. Management said disclosure controls were effective and there was no material change in internal control over financial reporting during Q2.
Investor verification points
- Track whether SaaS growth continues and how the revenue mix affects gross margins, particularly as equipment sales fluctuate.
- Verify PPP forgiveness status, repayment obligations and the company’s actual cash burn and liquidity against management’s 12-month assessment.
- Assess customer concentration, receivable collections and any COVID-19 effects on renewals, new sales and implementation activity.
- Review the share-count impact of the offering and any subsequent capital raises or equity compensation.
- Monitor the software-license asset and goodwill for impairment indicators, and note that the company maintains a full valuation allowance on deferred tax assets.