What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-14 · 40 added, 36 removed, 99 unchanged (43% of the section changed)

6 unchanged sentences

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 and six-month periods ended June 30, 2023.

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, 2022.

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.

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, deferred tax valuation allowances, allowance for doubtful accounts, revenue recognition (including breakage revenue), and the fair value of stock options under our stock-based compensation plans.

Significant estimates and assumptions that affect amounts reported in the financial statements include impairment consideration and valuation of goodwill and intangible assets, deferred tax valuation allowances, allowance for credit losses, 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.

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Under authoritative guidance, goodwill is not amortized, but rather it is periodically reviewed for impairment.

We had goodwill of $8,102 as of June 30, 2023.

We had goodwill of $8,102 as of September 30, 2023.

For the year ended December 31, 2022, the Company performed its annual impairment test of goodwill in the fourth quarter of the fiscal year.

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Events or changes in circumstances which could trigger an impairment review include macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, other entity specific events and sustained decrease in share price.

We determined that no events occurred or circumstances changed during the six months ended June 30, 2023 that would more likely than not reduce the fair value of the Company below its carrying amounts.

We determined that no events occurred or circumstances changed during the nine months ended September 30, 2023 that would more likely than not reduce the fair value of the Company below its carrying amounts.

We will, however, continue to monitor our stock price and operations for any potential indicators of impairment.

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Our intangible assets consist of patents and a software license.

We determined that no events occurred, or circumstances changed during the six months ended June 30, 2023 that would more likely than not reduce our intangible assets below our carrying amounts.

We determined that no events occurred, or circumstances changed during the nine months ended September 30, 2023 that would more likely than not reduce our intangible assets below our carrying amounts.

We will, however, continue to monitor any potential indicators of impairment.

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Deferred Income Taxes

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases

and net operating loss carry forwards.

Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

We have recorded a full valuation allowance for our net deferred tax assets as of June 30, 2023, due to the uncertainty of our ability to realize those assets.

We have recorded a full valuation allowance for our net deferred tax assets as of September 30, 2023, due to the uncertainty of our ability to realize those assets.

Reference Note 8, “Income Taxes,” in the Notes to Financial Statements for details on the Company’s income taxes.

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There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.

As of September 30, 2023, we are reviewing our historical state sales and use tax liabilities.

The Company is subject to sales and use taxes in jurisdictions where it has economic nexus.

These reviews, in addition to our conversations with state taxing authorities, may lead to adjustments to the reporting of transactional taxes.

We are currently assessing the outcomes that may result from these reviews, which may lead to adjustments to our taxes or net operating losses with respect to the years under review, as well as the current period.

We may be subject to additional accruals for the expected outcome of these sales and use tax matters.

Results of Operations

(All dollar amounts are rounded to thousands, except shares and per share data)

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2023

TO THE THREE MONTHS ENDED JUNE 30, 2022

Revenues for the three months ended June 30, 2023 increased $708, or 18%, to approximately $4,716 compared to $4,008 for the same period of 2022.

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2023

TO THE THREE MONTHS ENDED SEPTEMBER 30, 2022

Revenues for the three months ended September 30, 2023 increased $748, or 19%, to approximately $4,760 compared to $4,012 for the same period of 2022.

The increase in revenues is primarily the result of higher SaaS revenue growth for the current period.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $735 or 19% to $4,663 for the three months ended June 30, 2023 compared to $3,928 for the same period of 2022.

Gross profit increased $720, or 20%, to $4,364 for three months ended June 30, 2023 from $3,644 for the same period of 2022.

Our gross profit, as a percentage of revenues, was 93% and 91% for the three months ended June 30, 2023 and 2022, respectively.

The increase in gross profit percentage was driven by a higher concentration of SaaS revenues, a nominal decrease in hardware revenue, as well as an improved cloud cost structure.

Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $395, or 8%, to $5,137 for the three months ended June 30, 2023 compared to $4,742 for the same period of 2022.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $665 or 17% to $4,635 for the three months ended September 30, 2023 compared to $3,970 for the same period of 2022.

Gross profit increased $678, or 19%, to $4,332 for three months ended September 30, 2023 from $3,654 for the same period of 2022.

Our gross profit, as a percentage of revenues, was 91% for the three months ended September 30, 2023 and 2022, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $769, or 18%, to $5,147 for the three months ended September 30, 2023 compared to $4,378 for the same period of 2022.

This increase was primarily driven by higher general and administrative costs, specifically headcount-related expenses tied to non-restructuring severance expenses, as well as higher accounting and professional fees.

As a result of the factors noted above, the Company had a net loss of $(777) for the three months ended June 30, 2023 as compared to a net loss of $(1,098) for the three months ended June 30, 2022.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2023

TO THE SIX MONTHS ENDED JUNE 30, 2022

Revenues for the six months ended June 30, 2023 increased $1,567, or 21%, to $8,970 compared to $7,403 for the same period of 2022.

As a result of the factors noted above, the Company had a net loss of $(644) for the three months ended September 30, 2023 as compared to a net loss of $(724) for the three months ended September 30, 2022.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2023

TO THE NINE MONTHS ENDED SEPTEMBER 30, 2022

Revenues for the nine months ended September 30, 2023 increased $2,315, or 20%, to $13,730 compared to $11,415 for the same period of 2022.

The increase in revenues is primarily the result of higher SaaS revenue growth for the current period.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $1,610 or 22% to $8,891 for the six months ended June 30, 2023 compared to $7,281 for the same period of 2022.

Gross profit increased $1,563, or 23%, to $8,286 for three months ended June 30, 2023 from $6,723 for the same period of 2022.

Our gross profit, as a percentage of revenues, was 92% and 91% for the six months ended June 30, 2023 and 2022, respectively.

The increase in gross profit percentage was driven by a higher concentration of SaaS revenues, a nominal decrease in hardware revenue, as well as an improved cloud cost structure.

Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $1,079, or 12%, to $10,368 for the six months ended June 30, 2023 compared to $9,289 for the same period of 2022.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $2,277 or 20% to $13,526 for the nine months ended September 30, 2023 compared to $11,249 for the same period of 2022.

Gross profit increased $2,241, or 22%, to $12,618 for nine months ended September 30, 2023 from $10,377 for the same period of 2022.

Our gross profit, as a percentage of revenues, was 92% and 91% for the nine months ended September 30, 2023 and 2022, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, increased $1,849, or 14%, to $15,516 for the nine months ended September 30, 2023 compared to $13,667 for the same period of 2022.

As a result of the factors noted above, the Company had a net loss of $(2,093) for the six months ended June 30, 2023 as compared to a net loss of $(2,566) for the six months ended June 30, 2022.

As a result of the factors noted above, the Company had a net loss of $(2,737) for the nine months ended September 30, 2023 as compared to a net loss of $(3,290) for the nine months ended September 30, 2022.

Liquidity and Capital Resources

As of June 30, 2023, we had cash and cash equivalents of $4,185, short-term investments of $4,882, working capital (defined as current assets minus current liabilities) of $8,312, total assets of $21,632 and stockholders’ equity of $17,337.

During the six months ended June 30, 2023, we used net cash of $(856) in operating activities as compared to net cash of $(1,538) used in the six months ended June 30, 2022.

Cash used in investing activities was $(31) for the six months ended June 30, 2023 compared to cash used in investing activities of $(156) for the six months ended June 30, 2022.

Cash used in financing activities was $(124) for the six months ended June 30, 2023.

As of September 30, 2023, we had cash and cash equivalents of $3,962, short-term investments of $4,948, working capital (defined as current assets minus current liabilities) of $8,080, total assets of $22,376 and stockholders’ equity of $17,071.

During the nine months ended September 30, 2023, we used net cash of $(1,114) in operating activities as compared to net cash of $(1,711) used in the nine months ended September 30, 2022.

Cash provided by investing activities was $18 for the nine months ended September 30, 2023 compared to cash used in investing activities of $(165) for the nine months ended September 30, 2022.

Cash used in financing activities was $(138) for the nine months ended September 30, 2023.

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 filing.

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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 will not expire.

NOLs arising in a tax year ending after 2017 will not expire, however will be limited to 80% of each subsequent year's net income.

Adjusted EBITDA and Use of a Non-GAAP Measure

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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 impairments of long-lived assets and goodwill, 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.

By excluding non-cash charges such as impairments of long-lived assets and goodwill, 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.

We have included any severance-related expenses for terminated positions that will not be replaced as "non-restructuring severance expenses" within Adjusted EBITDA.

In addition, Adjusted EBITDA is one of the primary measures management uses to monitor and evaluate financial and operating results.

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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.

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.

The reconciliation of GAAP net loss to Non-GAAP Adjusted EBITDA is as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis