Intellinetics, Inc. (INLX) Q3 2026 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to the Intellinetics third quarter 2026 earnings call. All participants are in a listen-only mode. Following management's prepared remarks, we will conduct a question and answer session. Please submit questions at any time using the Ask a Question tab at the top right of your screen. Thank you. At this time, I would like to turn the conference call over to your host, Joe Spain, CFO, Treasurer, and Secretary of Intellinetics.

Thank you. Good afternoon, everyone. I am pleased to welcome you to the IntelliNetX 2026 third quarter conference call. Before we begin, I would like to remind the listeners that during this conference call, Comments made by management may include forward-looking statements regarding Intellinetics, Inc. that are not historical facts. These forward-looking statements are based on the current expectations and beliefs of management, and they are subject to risks and uncertainties that could cause such statements to differ materially from actual future events or results. Intellinetics, Inc. undertakes no duty to update any forward-looking statements. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release issued today, as well as risks and uncertainties included in the sections under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in IntelliNATIC's Annual Report on Form 10-K or the Quarter Report on Form 10-Q filed today. A copy of our Form 10-Q and Form 8-K, including our earnings press release, are available on our website. Also, please note that on the call today, management will discuss the non-GAAP financial measure adjusted EBITDA. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP and may be different from non-GAAP financial measures presented by other companies. A reconciliation between GAAP and non-GAAP measures can be found in our press release issued today in connection with this call and the filing of our Form 10-Q. With all that said, I would now like to turn the call over to Allison Forsyth, IntelliNATIC's President and CEO. Allison, the call is yours.

Good afternoon, everyone, and thank you for joining us. Before I begin, please bear with my voice today. I'm recovering from a case of laryngitis, but I did not want to miss the opportunity to speak with you about our third quarter results and the progress we're making at Intellinetics. The message I want shareholders to take away today is straightforward. Intellinetics is changing, and the third quarter is beginning to show what stronger execution can deliver. After a challenging first half, we returned to positive adjusted EBITDA, expanded gross margins, and materially narrowed our gap net loss. Joe will cover the financial details. I want to focus on what is changing within the business, why these changes matter, and where we believe the opportunity lies. When I joined Intellinetix nearly nine months ago, I saw valuable technology, longstanding customer relationships, recurring revenue, and considerable expertise in markets where information security, compliance, and access are essential. I also saw a business with significant room to improve execution, efficiency, and the way we bring these strengths together. Since then, we have worked to establish a more disciplined operating model, clearer accountability, stronger financial visibility, better project oversight, and more deliberate investment decisions. In the third quarter, we advanced an organizational restructuring to better align our resources with our priorities. We also strengthened our technology and professional services leadership to increase execution capacity in two areas that are critical to our future. These actions are not simply about reducing costs. They are about building a business that can execute consistently, scale more effectively, and convert opportunity into profitable growth. Accelerating SaaS growth remains our central commercial priority. Our current growth rate is below where we would like it to be, and we are not satisfied with that. We are focused on moving more efficiently from customer commitments through deployment to recognized recurring revenue. In parallel, we are sharpening product development priorities and directing technology investments towards opportunities with meaningful customer value and the potential to scale. There is also an opportunity in the combination of businesses we already have. Our document services capabilities help customers capture and digitize physical information. Our software helps them secure, manage, and use that information through content management and workflow. We see opportunities to connect these strengths more closely, deepen customer relationships, and deliver more value across the information lifecycle. One quarter does not establish a sustained trend, but the progress is tangible, our priorities are clearer, and our team is increasingly aligned around execution. Having spent nearly nine months leading in telenetics, I am more confident in the company's potential today than when I joined. The next test is consistency, translating these changes into stronger SaaS growth, improving operating leverage in both our divisions, and more predictable financial results. That is where our attention is focused. With that, I'll turn the call over to Joe for a closer look at the quarter.

Thanks, Allison. I will now review our financial results for the third quarter of 2026 in more detail. Total revenue for the quarter increased 0.7% to $4.03 million as compared to $4.0 million for the same period last year, driven by growth in SaaS and storage and retrieval revenue. The following are the material components of our revenue presented on our Statements of Operations. SaaS revenue increased 5% year-over-year to $1.7 million, driven primarily by new payables automation and budget tool customers, as well as price increases. Recurring software revenue continues to represent a growing component of our overall business mix. Software maintenance services were down, as expected, decreasing 21,000, or 6.6% from 2025. As a reminder, these maintenance revenues are from support agreements with long-time customers continuing on our legacy premise solution. Professional services revenue decreased $2.5 million to $1.8 million for the quarter, from $1.9 million for the same period last year. As a percentage of total revenue, professional services revenue was 46% of total revenue for the quarter compared to 47% last year. The modest decline reflects lower professional services in our software segment, while document services, professional services revenue, was essentially flat year over year. Following the reduced scanning project activity in the first half of the year, we have begun performing work on new orders in the third quarter and continue to take orders to refill our document services backlog. Consolidated gross margin percent increased 295 basis points to 67.1% for Q3 this year, compared to 64.2% last year. The increase was driven by professional services, where margins improved to 48.1% from 40.5%, reflecting more profitable document scanning and conversion projects. Importantly, our software margins in both SaaS and maintenance remained solid. Operating expenses. We're essentially flat for the quarter, increasing 0.1% to $2.9 million for Q3-26 compared to $2.85 million in 25. A 4% increase in general and administrative expenses was offset by an 11.8% decrease in sales and marketing expenses and a 9.8% decrease in depreciation and amortization. Net loss for Q3 was $0.2 million compared to net loss of $0.4 million for the same period last year. The improvement was driven primarily by higher gross profit from improved professional services margins in our document services segment, with operating expenses essentially flat. Loss per share was $0.05 per share compared to loss per share of $0.08 last year. Our adjusted EBITDA profit for the quarter was $145,000 compared to adjusted EBITDA profit of $103,000 in the same period last year, reflecting approximately $135,000 higher gross profit driven by the Q3 improvement in the document services segment. Turning to nine-month results. Total revenue for the first nine months, 26, decreased 3.1% to $11.9 million as compared to $12.3 million last year. SaaS revenue increased 3.2% to $4.9 million. Professional services revenue decreased 7.8%, ending at $5.5 million compared to $5.9 million last year on lower scanning project volume in our document services segment, particularly in the first half of the year. Consolidated gross margin was 65.7% compared to 65.5% last year. The increase was driven by stronger storage and retrieval margins from reduced low-margin destruction work, while professional services margins were relatively flat for the nine months. Our software margins by revenue line remained solid. Operating expenses increased 7.5% to $10.3 million for the first nine months of 2026, compared to 9.6 in 2025. The increase is driven by two primary factors. First, general admin expense increased 14.1%, including approximately $430,000 of non-recurring CEO transition costs incurred in the first quarter. Second, partially offsetting that increase, sales and marketing expenses decreased 13.2%, and depreciation and amortization decreased 6.7%. Nine-month net loss was $2.5 million compared to net loss of $1.7 million last year. Net loss per basic and diluted share was $0.56 compared to net loss per basic and diluted share of $0.39.25. Nine-month adjusted EBITDA was a loss of $514,000 compared to positive adjusted EBITDA of $207,000 for the same period in 2025. The decline reflects approximately $226,000 of a lower gross profit on reduced professional services volume together with higher cash operating expenses, both primarily driven by the first half of the year. Next. Turn to a brief overview of the balance sheet. At September, 2026, we had cash of $2.85 million in accounts receivable net of $0.9 million. Our total assets were $16.7 million, including $8.4 million in intangible assets and goodwill as part of acquisitions made since 2020. Total liabilities were $7 million. Including $4.1 million in deferred revenues, reflecting signed SAS and maintenance contracts. We had no debt as of September 30, 26, nor any borrowings in 2026. I'd like to wrap up with a brief financial outlook, which reflects an update to our prior guidance. Based on results through the third quarter, current visibility, and our current plans and assumptions, and of course, subject to risks and uncertainties we described in our filings and this call, management now expects single-digit year-over-year SaaS revenue growth for fiscal 2026, compared with its previous expectation of double-digit growth. The revised outlook. Primary reflects the timing of customer deployments and the pace at which bookings convert into recognized SaaS revenue. Following meaningful improvement in the third quarter operating performance, we enter the fourth quarter with a lower cost structure resulting from organizational actions taken during the third quarter. We are also seeing improved deal pipelines across both software and document services businesses. Management believes these developments provide stronger foundation to build on recent progress, while recognizing that deployment and project timing will continue to influence quarterly results. Management remains focused on converting opportunities into revenue, improving customer deployment execution, and directing investments toward software and services capabilities that can support more consistent, profitable growth. And now, back to Allison for some final remarks.

Thanks, Joe. If there is one thought I want to leave investors with, it is this. Our ambition is not simply to improve near-term profitability. It is to build a more focused, more scalable Intellinetics, one where software and services strengthen each other and where growth translates into stronger financial performance. In this current fiscal year, we have made important changes to our leadership, cost structure, and operating discipline. Now the emphasis is on execution, accelerating customer deployments and SaaS growth, improving the consistency and profitability of services, and making disciplined product development investments. We will judge our progress by results, not activity. Our combination of document conversion, content management, and workflow capabilities provides a meaningful opportunity to solve more of our customers' information challenges. We intend to build on those strengths thoughtfully with clear customer value and sound investment discipline. The third quarter is evidence of progress, not the finish line. I am confident in the opportunity and clear-eyed about the work ahead. We are not simply focused on delivering a better quarter. We are focused on building a better company with a larger recurring revenue base, better operating leverage, and sustainable profitability. Thank you for your continued interest in Intellinetics. Megan, I'll now turn the call back to you.

If you wish to ask a question, please use the Ask a Question tab at the top right of your screen. We'll wait a moment to assemble the queue. There are no questions at this time. This concludes the Q&A session and today's call. You may now disconnect.