Intellicheck, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Intellicheck develops identity-authentication and threat-identification products for commercial, law-enforcement, government, and military markets, including Retail ID, Age ID, Law ID, and Defense ID.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.930 million | $1.040 million | $4.767 million | $3.103 million |
| Gross profit | $1.671 million | $0.927 million | $4.097 million | $2.808 million |
| Gross margin | 86.6% | 89.1% | 85.9% | 90.4% |
| Operating expenses | $2.252 million | $2.082 million | $6.816 million | $6.188 million |
| Net loss | $0.568 million | $1.131 million | $2.655 million | $3.300 million |
| Adjusted EBITDA (non-GAAP) | $(0.457) million | $(1.048) million | $(2.029) million | $(3.029) million |
| Basic and diluted loss per share | $(0.04) | $(0.07) | $(0.17) | $(0.21) |
- Q3 revenue rose 86%; nine-month revenue rose 54%. Management attributed the increase primarily to higher commercial revenue. SaaS revenue grew 140% in Q3 and 90% for the nine-month period.
- Gross profit increased, but margins declined, primarily because of higher SaaS hosting costs. Management said margins were expected to normalize around 85%.
- Operating expenses rose 8% in Q3 and 10% year to date. Management cited development hiring, sales commissions, incentive-plan accruals, and higher stock-based compensation, partly offset by lower sales headcount, travel, marketing, and normalized R&D spending.
- At September 30, cash was $2.757 million, versus $4.376 million at December 31, 2018. Working capital was $2.615 million; total assets were $13.412 million and stockholders’ equity was $11.235 million.
- Operating activities used $2.090 million of cash in the first nine months, compared with $3.207 million in the prior-year period. Investing activities provided $15,000 and financing activities provided $456,000.
- No borrowings were outstanding under the Citibank revolving facility; reported availability was $2.0 million. The facility’s rate was the bank’s base rate less 2% (base rate 6.5% at quarter-end), subject to facility terms.
- The filing reports no other outstanding debt. Accrued expenses were $1.139 million and deferred revenue totaled approximately $699,000 at quarter-end.
Outlook, risks, and notable items
- Management expected available cash, operating cash flows, and revolving-credit availability to meet working-capital and capital-expenditure needs for at least 12 months. The company cautioned that weaker-than-expected performance or higher expenses could require additional financing or expense reductions; financing may not be available on acceptable terms.
- No specific revenue or earnings guidance was provided. Management noted that nine-month results are not necessarily indicative of full-year results.
- Customer concentration is significant: three customers represented approximately 36% of Q3 revenue and 34% of nine-month revenue; those customers accounted for 26% of accounts receivable at September 30.
- The company reported a $2.655 million nine-month net loss and $2.090 million operating cash use. It had an accumulated deficit of $117.041 million. Management stated that cash resources and expected operating revenue were sufficient for at least 12 months, while noting the possibility of financing or cost reductions if assumptions are not met.
- Goodwill was $8.102 million. No impairment was recognized during the first nine months; the annual impairment test was planned for Q4 2019. A full valuation allowance was maintained against deferred tax assets.
- The company adopted lease accounting effective January 1, 2019, recognizing a right-of-use asset and lease liability; management said adoption did not materially affect operating results. The office lease runs through March 2021.
- Executive and employee incentive plans contributed to accrued expenses. The company accrued $282,717 for executive bonuses and $145,900 for the employee plan at September 30. The employee plan’s payment depends on achievement of 2019 revenue goals.
- Management reported no material legal proceedings, no material change in internal control over financial reporting, and effective disclosure controls. It identified economic weakness and reduced business or consumer spending as risks.
Investor verification points
- Assess whether SaaS growth can continue and whether hosting costs allow gross margins to remain near management’s stated 85% expectation.
- Track cash burn, collections, and customer concentration against the company’s stated 12-month liquidity outlook.
- Confirm the terms and actual availability of the revolving facility, including its collateral limitations and any subsequent borrowings.
- Review progress toward 2019 revenue goals and related incentive accruals, as well as changes in operating expenses and stock-based compensation.
- Monitor the Q4 2019 goodwill impairment assessment and the status of the company’s deferred tax assets and NOLs.