Intellicheck: Growth and Value

 While most companies suffer from reduced demand, there are fortunate few that benefits
from filling in the needs of the new normal. Intellicheck, Inc. (IDN) is one such
company.
 The surge in revenue is expected to continue in the coming years with annual revenue
growth of 46% surpassing the projected 9.5% annual revenue growth in the US market.
 Analysts consider IDN undervalued by 80% to its estimated fair value.

“A bend in the road is not the end of the road unless you fail to make the turn.”
 

COVID19 has pushed many economies into recession. Countries imposed lockdown to curve the
spread of the virus. ‘Social distancing’ became the new norm. Businesses fight for survival by
moving into the new normal, redesigning their processes to be as contactless as possible. This
most certainly requires a move to the digital space. Employers reconfigure functions to allow for
a work-from-home format and online customer orders processing. While most companies suffer
from reduced demand, there are fortunate few that benefits from filling in the needs of the new
normal. Intellicheck, Inc. (IDN) is one such company. IDN is a technology company that
develops applications for identity authentication. The company develops patented ID Document
Authentication, Optical Character Recognition (OCR), and Facial Recognition capabilities for
their clients in the financial services, retail, law enforcement, hospitality, defense, and
transportation industry. IDN serves customers in the United States, Canada, and Mexico.

Figure 1. IDN 12-month Share Price

Financial Performance
IDN announced 18% growth in revenue for the second quarter ended June 2020. The company
derives revenue through subscription fees, sale of systems, upgrades, and maintenance programs.
Recurring subscription or Saas revenues make up 90% of the total. While Saas revenue was
down in Q1 2020 because of lockdown related office closure, second-quarter results made up for
that resulting in a 49% year on year increase. Gross profit is 88.6%, an improvement from 85.9%
same period last year. The surge in revenue is expected to continue in the coming years with
annual revenue growth of 46% surpassing the projected 9.5% annual revenue growth in the US
market.

Price Forecast and Valuation

IDN stock price rose 70% in 1 year while year-to-date performance is a decline of 5%. Analysts
project a continued rise in IDN stock price for the next 12 months with an average increase of
54% from the current price of $7.13. Price range forecast is a low of $10 and a high of $12.
Analysts consider IDN undervalued by 80% to its estimated fair value.

Figure 2. IDN 12-month Price Forecast

Source: CNN Money

Risks and Growth Prospect

The company is currently unprofitable as selling, general and administrative expenses ate up the
gross profit generated. However, IDN managed to reduce losses the past five years at a rate of
22% per year.

During the second quarter 2020 earnings call, CEO Bryan Lewis said, “The shut down of
physical locations made our customers realize how exposed they were to fraud in the digital
channels. This move to digital has sped up the adoption of our person, not present authentication
tools.” Despite facing initial setbacks due to office closure, the company is well-positioned to
take advantage of the changing business landscape. IDN differentiates itself from the growing
competitors in the field of facial recognition by providing the critical first step of government ID
authentication. Debt is minimal, allowing for ample room to use leverage to scale up.
Summary

Companies exhibiting growth during an economic recession are rare. What makes IDN even
more special is that boom in its sector is expected to continue in the foreseeable future. On the
other hand, revenue generation is not enough, and management should also be able to add value
to shareholders through earnings. Investors should be wary about IDN's profitability position,
but it seems it is of popular opinion among analysts that IDN can turn this around.