Intellicheck, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (All dollar amounts are rounded to thousands, except shares and per share data) Forward Looking Statements This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, loss from operations and cash flow. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. References made in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” “Intellicheck,” or the “Company,” refer to Intellicheck, Inc. The following discussion and analysis of our financial condition and results of operations constitutes management’s review of the factors that affected our financial and operating performance for the three months and nine months ended September 30, 2025. This discussion should be read in conjunction with the financial statements and notes thereto contained elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2024. Overview We are a prominent technology company engaged in developing, integrating and marketing identity verification solutions to address challenges that include commercial retail and banking fraud prevention. Our products include solutions for preventing identity fraud across any industry delivered via smartphone, tablet, POS integration or other electronic devices. Critical Accounting Policies and the Use of Estimates The preparation of our financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets including software development costs, revenue recognition (including breakage revenue), and the fair value of stock options under our stock-based compensation plans. Due to the inherent uncertainties involved in making estimates, actual results reported in future periods may be different from those estimates. Recent Accounting Pronouncements In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740) , which establishes new income tax disclosure requirements in addition to modifying and eliminating certain existing requirements. The new guidance requires consistent categorization and greater disaggregation of information in the rate reconciliation, as well as further disaggregation of income taxes paid. This change is effective for annual periods beginning after December 15, 2024. This change will apply on a prospective basis to annual financial statements for periods beginning after the effective date. However, retrospective application in all prior periods presented is permitted. The Company is currently evaluating the impact of this ASU on its financial statements. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40) : Disaggregation of Income Statement Expenses. The amendment requires new financial statement disclosures to provide disaggregated information for certain types of expenses, including employee compensation, depreciation, and amortization in commonly presented expense captions such as cost of revenue, sales and marketing, and general and administrative expenses. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is in the process of evaluating the effect that the adoption of these standards will have on its financial statements. 22 Index In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets." This standard allows entities to apply a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC 606, Revenue from Contracts with Customers . The standard is effective for all the entities for fiscal years beginning after after December 15, 2025, including interim periods within those fiscal years. Early adoption is permitted, and the standard is to be applied prospectively. The Company is currently evaluating the impact of the adoption of this standard. In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the accounting for internal-use software by replacing the previous stage-based model and aligning the capitalization process with current development practices, especially agile and iterative methods. ASU 2025-06 is effective for annual reporting periods beginning after December 15, 2027, and may be applied prospectively, retrospectively, or using a modified transition approach. The Company is in process of evaluating the impact of the adoption of this ASU on its financial statements. Revenue Recognition and Deferred Revenue SaaS fees and service revenue are generated from a combination of fixed-price and per-scan contracts. Under the per-scan revenue model, customers are charged a fee each time the customer scans an identity document, such as a driver’s license, with the Company’s software. Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access the Company’s software. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company measures revenue based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement are satisfied. A performance obligation is a promise in a contract to transfer a distinct service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the customer receives the benefit of the performance obligation. Customers typically receive the benefit of the Company’s services as they are performed. The Company's performance obligations are satisfied over time, and as a result, we may follow the right to invoice practical expedient meaning we recognize revenue monthly as invoiced based on our contract terms. Reference Note 2, “Significant Accounting Policies,” in the Notes to Unaudited Condensed Financial Statements for additional details on the Company’s recognized and deferred revenue. Stock-Based Compensation We account for the issuance of stock-based compensation awards to employees in accordance with ASC 718, Compensation – Stock Compensation , which requires that the cost resulting from all stock-based compensation payment transactions be recognized in the financial statements. This pronouncement establishes fair value as the measurement objective in accounting for stock-based compensation payment arrangements and requires all companies to apply a fair value-based measurement method in accounting for all stock-based compensation payment transactions with employees. Reference Note 9, “Stockholders' Equity,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s stock-based compensation plans. Valuation of long-lived assets Our long-lived assets include property and equipment, goodwill, and intangible assets. As of September 30, 2025, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $436, $8,102 and $2,218, respectively. As of December 31, 2024, the balances of property and equipment, goodwill and intangible assets, all net of accumulated depreciation and amortization, were $536, $8,102 and 2,374, respectively. Reference Note 2, “Significant Accounting Policies”; Note 4, “Property and Equipment, Net”; and Note 5, “Goodwill and Intangible Assets” in the Notes to Financial Statements of the December 31, 2024 audited financial statements for details on the Company’s valuations of our long-lived assets. Internal Use Capitalized Software We capitalize certain costs related to the development of our platform and other software applications for internal use. In accordance with authoritative guidance, we begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used as intended. We stop capitalizing these costs when the software is substantially complete and ready for its intended use, including the completion of all significant 23 Index testing. These costs are amortized on a straight-line basis over the estimated useful life of the related asset. We also capitalize costs related to specific upgrades and enhancements when it is probable the expenditure will result in additional functionality and expense costs incurred for maintenance and minor upgrades and enhancements. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded within research and development expenses in the statements of operations. We exercise judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. The above listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. Results of Operations (All dollar amounts are rounded to thousands, except share and per share data) COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2025 TO THE THREE MONTHS ENDED SEPTEMBER 30, 2024 Revenues for the three months ended September 30, 2025 increased $1,305, or 28%, to approximately $6,014 compared to $4,709 for the same period of 2024. The increase in revenues is primarily the result of higher SaaS revenue for the current period. SaaS revenue, which consists of software licensed on a subscription basis, increased $1,207 or 26% to $5,868 for the three months ended September 30, 2025 compared to $4,661 for the same period of 2024. Gross profit increased $1,158, or 27%, to $5,443 for three months ended September 30, 2025 from $4,285 for the same period of 2024. Our gross profit, as a percentage of revenues, was 91% for the three months ended September 30, 2025 and 2024. Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $10, or 0.2%, to $5,205 for the three months ended September 30, 2025 compared to $5,195 for the same period of 2024. The increase in operating expenses is primarily the result of less capitalization of research and development costs related to software development. As a result of the factors noted above, the Company had a net income of $290 for the three months ended September 30, 2025 as compared to a net loss of $(837) for the three months ended September 30, 2024. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2025 TO THE NINE MONTHS ENDED SEPTEMBER 30, 2024 Revenues for the nine months ended September 30, 2025 increased $1,971, or 14%, to approximately $16,031 compared to $14,060 for the same period of 2024. The increase in revenues is primarily the result of higher SaaS revenue for the current period. SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $1,920 or 14% to $15,816 for the nine months ended September 30, 2025 compared to $13,896 for the same period of 2024. Gross profit increased $1,678, or 13%, to $14,435 for the nine months ended September 30, 2025 from $12,757 for the same period of 2024. Our gross profit, as a percentage of revenues, was 90% and 91% for the nine months ended September 30, 2025 and 2024, respectively. Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $452, or 3%, to $14,843 for the nine months ended September 30, 2025 compared to $14,391 for the same period of 2024. The increase in operating expenses is primarily the result of less capitalization of research and development costs related to software development. As a result of the factors noted above, the Company had an improved net loss of $(279) for the nine months ended September 30, 2025 as compared to a net loss of $(1,406) for the nine months ended September 30, 2024. 24 Index As the Company strategically transitions customers from existing usage-based contracts to access based contracts we expect that our balance sheet accounts related to accounts receivable and deferred revenue will fluctuate with the related contract conversions. This transition may also influence revenue trends, such as seasonality. Liquidity and Capital Resources As of September 30, 2025, we had cash and cash equivalents of $7,223, working capital (defined as current assets minus current liabilities) of $8,150, total assets of $25,257 and stockholders’ equity of $18,907. During the nine months ended September 30, 2025, we generated cash of $2,147 in operating activities as compared to net cash of $(1,373) used in operating activities in the nine months ended September 30, 2024. Cash used in investing activities was $(254) for the nine months ended September 30, 2025 compared to cash provided by investing activities of $3,120 for the nine months ended September 30, 2024. Cash provided by financing activities was $664 for the nine months ended September 30, 2025 compared to net cash of $20 provided by financing activities for the nine months ended September 30, 2024. We currently anticipate that our available cash, expected cash from operations and availability under the revolving line of credit, will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months from the date of this report. Reference Note 6, “Debt,” in the Notes to Unaudited Condensed Financial Statements for details on the Company’s revolving line of credit. We keep the option open to raise additional funds to respond to business contingencies which may include the need to fund more rapid expansion, fund additional marketing expenditures, develop new markets for our technology, enhance our operating infrastructure, respond to competitive pressures, or acquire complementary businesses or necessary technologies. There can be no assurance that we will be able to secure the additional funds when needed or obtain such on terms satisfactory to us, if at all. The specific terms of any future offering, including the prices and use of proceeds, will be determined at the time of any such offering and will be described in detail in a prospectus supplement which will be filed with the SEC at the time of the offering. We are not currently involved in any legal or regulatory proceeding, or arbitration, the outcome of which is expected to have a material effect on our business. Net Operating Loss Carry Forwards Our available net operating loss (“NOL”) as of December 31, 2024 was approximately $28,500, of which $10,900 expires between 2035 and 2037. In accordance with the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), U.S. NOLs arising in a tax year ending after 2017 in the amount of $17,600 will not expire, but are subject to 80% limitation on utilization. In addition to the NOLs, the Company has approximately $700 of research and development credits. Use of Non-GAAP Measures Adjusted Gross Profit We use Adjusted Gross Profit as a non-GAAP financial performance measurement. Adjusted Gross Profit is calculated by adjusting gross profit for the reduction of amortization expense. Adjusted Gross Profit is provided to investors to supplement the results of operations reported in accordance with GAAP. We believe Adjusted Gross Profit is important because it focuses on the current operating performance, as amortization expense does not accurately reflect the current costs required to maintain the operational usage of our service. Rather, amortization expense reflects the allocation of historical software development costs over their estimated useful lives. As an indicator of our operating performance, Adjusted Gross Profit should not be considered an alternative to, or more meaningful than, gross profit as determined in accordance with GAAP. Our Adjusted Gross Profit may not be comparable to a similarly titled measure of another company because other entities may not calculate Adjusted Gross Profit in the same manner. 25 Index The reconciliation of GAAP gross profit to Non-GAAP Adjusted Gross Profit is as follows: Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Revenues $ 6,014 $ 4,709 $ 16,031 $ 14,060 Cost of revenues, exclusive of amortization 434 400 1,234 1,232 Amortization allocable to cost of revenues 137 24 362 71 Gross profit 5,443 4,285 14,435 12,757 Add: Amortization allocable to cost of revenues 137 24 362 71 Adjusted gross profit 5,580 4,309 14,797 12,828 Gross profit as a percentage of revenues 90.5 % 91.0 % 90.0 % 90.7 % Adjusted gross profit as a percentage of revenues 92.8 % 91.5 % 92.3 % 91.2 % Adjusted EBITDA We use Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as restructuring severance expenses, interest and other income, provisions for income taxes, depreciation, amortization and stock-based compensation expense. Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing our financial results with other companies that also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and provisions for income taxes, investors can evaluate our operations and can compare the results on a more consistent basis to the results of other companies. In addition, Adjusted EBITDA is one of the primary measures management uses to monitor and evaluate financial and operating results. We consider Adjusted EBITDA to be an important indicator of our operational strength and performance of our business and a useful measure of our historical operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes restructuring severance expenses, interest and other income, provisions for income taxes, stock-based compensation expense, all of which impact our profitability, as well as depreciation and amortization related to the use of long-term assets which benefit multiple periods. We believe that these limitations are compensated by providing Adjusted EBITDA only with GAAP net loss and clearly identifying the difference between the two measures. Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net loss presented in accordance with GAAP. Adjusted EBITDA as defined by us may not be comparable with similarly named measures provided by other companies. 26 Index The reconciliation of GAAP net income (loss) to Non-GAAP Adjusted EBITDA is as follows: Three Months Ended September 30 Nine Months Ended September 30 2025 2024 2025 2024 Net income (loss) $ 290 $ (837) $ (279) $ (1,406) Reconciling items: Restructuring severance expenses — 376 — 376 Provision for income taxes — — — 2 Other income, net (52) (73) (129) (230) Depreciation and amortization 189 130 513 275 Stock-based compensation, including liability classified awards 204 237 583 642 Adjusted EBITDA $ 631 $ (167) $ 688 $ (341) Off-Balance Sheet Arrangements We have not entered into any off-balance sheet financing arrangements and have not established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable to smaller reporting companies.