What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-14 compared with 2023-11-14 · 49 added, 60 removed, 79 unchanged (58% of the section changed)

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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 nine-month periods ended September 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, 2023.

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments to measure credit losses on financial instruments, including trade receivables.

The guidance eliminates the probable initial recognition threshold that was previously required prior to recognizing a credit loss on financial instruments.

The credit loss estimate can now reflect an entity’s current estimate of all future expected credit losses.

Under the previous guidance, an entity only considered past events and current conditions.

The guidance is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The adoption of certain amendments of this guidance must be applied on a modified retrospective basis and the adoption of the remaining amendments must be applied on a prospective basis.

The Company concluded that the adoption of this standard did not have a material impact on its financial statements because of the short-term nature of it's outstanding accounts receivable and there have been no significant forward-looking economic conditions identified by the Company that would impact its short-term investments.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which enhances reporting requirements under Topic 280.

The enhanced disclosure requirements include:

title and position of the Chief Operating Decision Maker (CODM), significant segment expenses provided to the CODM, extending certain annual disclosures to interim periods, clarifying single reportable segment entities must apply ASC 280 in its entirety, and permitting more than one measure of segment profit or loss to be reported under certain circumstances.

This change is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024.

This change will apply retrospectively to all periods presented.

The Company is currently evaluating the impact of this ASU on its financial statements.

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.

The excess of the purchase consideration over the fair value of the assets of acquired businesses is considered goodwill.

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

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

We had goodwill of $8,102 as of March 31, 2024.

For the year ended December 31, 2023, 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 nine months ended September 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 three months ended March 31, 2024 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 nine months ended September 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 three months ended March 31, 2024 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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Revenue Recognition and Deferred Revenue

SaaS fees and service revenues 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 our software.

Under the fixed-price revenue model customers are charged a fixed monthly fee either per device or physical business location to access our software.

In certain instances, customization services are determined to be essential to the functionality of the delivered software.

Under Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” 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.

We measure revenue based on the consideration specified in a customer arrangement, and revenue is recognized when the performance obligations in an arrangement are satisfied.

The Company adopted an additional revenue model where customers purchase a predetermined number of transactions for the term of the contract, where revenue for these transactions is recognized on a per transaction basis.

The Company estimates the number of transactions that will be unused by the end of each contract period and recognized a portion of that revenue as breakage revenue each reporting period.

Most license fees and services 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 Financial Statements for additional details on the Company’s recognized and deferred revenue.

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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 September 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 March 31, 2024, 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 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 $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 $(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.

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2024

TO THE THREE MONTHS ENDED MARCH 31, 2023

Revenues for the three months ended March 31, 2024 increased $426, or 10%, to approximately $4,680 compared to $4,254 for the same period of 2023.

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 $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 $(2,737) 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.

SaaS revenue, which consists of software licensed as a service on a subscription basis, increased $381 or 9% to $4,609 for the three months ended March 31, 2024 compared to $4,228 for the same period of 2023.

Gross profit increased $323, or 8%, to $4,245 for three months ended March 31, 2024 from $3,922 for the same period of 2023.

Our gross profit, as a percentage of revenues, was 91% and 92% for the three months ended March 31, 2024 and 2023, respectively.

Operating expenses, which consist of selling, general and administrative and research and development expenses, decreased $535, or 10%, to $4,768 for the three months ended March 31, 2024 compared to $5,303 for the same period of 2023.

This decrease was primarily driven by lower research and development costs specifically headcount-related expenses.

As a result of the factors noted above, the Company had a net loss of $(442) for the three months ended March 31, 2024 as compared to a net loss of $(1,387) for the three months ended March 31, 2023.

Liquidity and Capital Resources

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.

As of March 31, 2024, we had cash and cash equivalents of $9,239, working capital (defined as current assets minus current liabilities) of $7,200, total assets of $22,615 and stockholders’ equity of $17,178.

During the three months ended March 31, 2024, we generated net cash of $869 in operating activities as compared to net cash of $233 provided by operating activities in the three months ended March 31, 2023.

Cash provided by investing activities was $4,390 for the three months ended March 31, 2024 compared to cash used in investing activities of $(17) for the three months ended March 31, 2023.

Cash used in financing activities was zero for the three months ended March 31, 2024 compared to net cash of $(57) used in financing activities for the three months ended March 31, 2023.

next 12 months from the date of filing.

Reference Note 6, “Debt,” in the Notes to Financial Statements for details on the Company’s revolving line of credit.

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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, however will be limited to 80% of each subsequent year's net income.

NOLs arising in a tax year ending after 2017 in the amount of $15.4 million will not expire, but are subject to 80% limitation on utilization.

In addition to the NOLs, the Company has approximately $708 thousand of research and development credits.

Adjusted EBITDA and Use of a Non-GAAP Measure

We use Adjusted EBITDA as a non-GAAP financial performance measurement.

Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as interest and other income (expense) and certain addbacks such as non-restructuring severance expenses, provisions for income taxes, depreciation, amortization and stock-based compensation expense.

Adjusted EBITDA is calculated by adjusting net loss for certain reductions such as interest and other income (expense), 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 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.

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.

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

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

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

2023 2022 2023 2022

Three Months Ended March 31,

Net loss $ (442) $ (1,387)

Reconciling items:

Non-restructuring severance expenses 131 — 548 —

Provision for income taxes 2 7

Interest and other expense (income) (179) — (181) —

Interest and other income (83) (1)

Sales tax accrual — 71

Depreciation and amortization 72 70

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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