Intellicheck, Inc. Q1 FY2022 earnings

Intellicheck postponed its first quarter 2022 earnings report and conference call on May 12, 2022. The delay gives the company and its external auditors more time to complete accounting analysis of the company's equity compensation program. The 10-Q reports revenue of $3.40 million for the three months ended March 31, 2022, up 18.6% from the prior-year quarter. That top-line growth came with a narrower loss, but cash burn worsened. The company did not provide formal guidance for the next quarter or the full fiscal year. The press release did not include a new date for the postponed call.

Gross profit rose 16.5% to $3.08 million. Gross margin was 90.7%, down 1.6 percentage points from the prior-year quarter. Management said the margin decline was primarily due to increased costs for cloud and other web-based support services. Operating loss narrowed to $1.47 million, and net loss narrowed to $1.47 million. Diluted loss per share was negative $0.08, compared with a loss in the prior-year quarter. Operating margin was negative 43.2%, up 118.8 percentage points. The improvement in operating results came largely from lower operating expenses, which management attributed to higher equity compensation costs in the prior-year period. The 10-Q also notes that SaaS revenue increased, but the company still reported a net loss.

Cash flow and backlog metrics moved in different directions. Operating cash flow was negative $2.40 million, down 408.9% from the prior-year quarter. Capital expenditures were $0.13 million, up 172.9%. Deferred revenue was $1.03 million, up 126.4%. Remaining performance obligations were $1.04 million, up 124.4%. The 10-Q reconciliation shows Adjusted EBITDA of negative $806,000 for the quarter, compared with negative $51,000 a year earlier. Management believes available cash, expected cash from operations, and the revolving line of credit will meet working capital and capital expenditure requirements for at least the next 12 months. The company also keeps the option open to raise additional funds for expansion, marketing, new markets, or acquisitions, though it offers no assurance that such funds will be available on satisfactory terms.

The quarter's risks remain familiar for Intellicheck. The company faces uncertainty around the duration and severity of the COVID-19 pandemic and its impact on customers and demand. It also cites long sales and implementation cycles, potential supply chain delays, and the risks of doing business with the government, including audits and contract cancellations. Other risks include security breaches, product failure, and the ability to enforce intellectual property rights. Management monitors goodwill and intangible assets for impairment, and it recorded a full valuation allowance on net deferred tax assets as of March 31, 2022. The company states that it is not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material adverse effect on its business. The postponed earnings call adds a near-term governance and accounting risk, since the delay is tied to the equity compensation program.

The company's identity validation products serve financial services, fintech, BNPL providers, e-commerce, retail, law enforcement, and government agencies across North America. Revenue growth in the quarter was driven by higher commercial SaaS revenues, according to the 10-Q. That mix shift matters because SaaS revenue is recurring, but the company still needs to convert deferred revenue and RPO into recognized revenue. The balance sheet and cash flow statement show that the business is not yet self-funding. The operating cash outflow of $2.40 million was larger than the prior-year outflow, even as the net loss narrowed. That gap between accounting losses and cash use is a key item to watch. Deferred revenue and RPO both rose sharply from the prior-year quarter, which suggests improving bookings, but the cash flow statement shows the timing mismatch between billings and collections.

The equity compensation program is central to both the delay and the year-over-year expense comparison. The 10-Q says the decrease in operating expenses was primarily due to higher equity compensation costs in the prior-year period. Adjusted EBITDA, a non-GAAP measure, excludes equity compensation, depreciation, amortization, and other items. That measure was negative $806,000 for the quarter, compared with negative $51,000 a year earlier. The gap between the net loss and Adjusted EBITDA is largely explained by equity compensation and depreciation and amortization. Investors will want to see whether the accounting analysis changes any of those figures.