Intellinetics(INLX) - 2024 Q3 - Quarterly Report

Revenue Performance - Revenues for Q3 2024 were $4,589,625, representing an 8.0$13,738,302, reflecting an 8.2% growth compared to the same period in 2023[97][101]. - The Document Management segment generated revenues of $1,913,116 in Q3 2024, up from$1,871,395 in Q3 2023, and $5,592,624 for the nine-month period 2024, compared to$5,549,194 in the same period last year[111]. - The Document Conversion segment reported revenues of $2,676,509 in Q3 2024, an increase from$2,377,034 in Q3 2023, and $8,145,678 for the nine-month period 2024, compared to$7,144,498 in the prior year[111]. - Revenues for Q3 2024 increased by $341,196, or 8.0$1,044,610, or 8.2%, primarily driven by software as a service and professional services in the Document Conversion segment[113]. - Software as a Service revenues rose by $110,197, or 8.5$399,591, or 10.5%, in the nine-month period compared to the same periods in 2023, mainly due to new cloud-based solution sales[114]. - Professional services revenues increased by $267,140, or 11.5$811,571, or 11.7%, in the nine-month period, driven by a significant project in Document Conversion[115]. Operating Expenses - Operating expenses (excluding cost of revenues) for the nine-month period 2024 increased by 28.2% to $8,869,062, driven primarily by share-based compensation and investments in sales and marketing[102]. - Total operating expenses for Q3 2024 were$3,104,065, up from $2,260,036 in Q3 2023, marking an increase of 38.4$597,833, or 39.4%, in Q3 2024 compared to Q3 2023, primarily due to new share-based compensation expenses[127]. - Sales and marketing expenses rose by $206,211, or 41.6$392,850, with a basic and diluted net loss per share of $0.09, compared to a net income of$209,331 and earnings per share of $0.05 in Q3 2023[100]. - Gross profit for Q3 2024 was$2,805,854, compared to $2,605,591 in Q3 2023, with a gross profit percentage of 61.1$1,933,562 in Q3 2024, compared to $1,427,945 in Q3 2023, indicating improved cash flow from operations[100]. - Net cash provided by operating activities during the nine-month period 2024 was$3,652,417, compared to $1,128,314 in the same period of 2023[139]. - Net cash used in investing activities in the nine-month period 2024 was$695,359, including $302,396 in capitalized software[140]. - As of September 30, 2024, the company had$2.5 million in cash and cash equivalents and a working capital deficit of $0.2 million[134]. Workforce and Growth - The company had 199 employees as of September 30, 2024, an increase from 165 employees a year earlier, reflecting growth in workforce to support business expansion[105]. - The company anticipates continued growth driven by the demand for software as a service (SaaS) solutions, particularly in light of the increasing adoption of remote workforce policies[92][93]. - The company is focusing on expanding its cloud-based solutions and data storage offerings to drive future growth[114]. Challenges and Risks - The company anticipates a significant adverse impact on future professional services revenues due to potential pricing renegotiations with its largest Document Conversion customer[115]. - The company experienced a higher than normal churn rate in K-12 customers affecting the growth of the YellowFolder product[114]. - Cost of Software as a Service (SaaS) increased by$28,819, or 14.4%, in Q3 2024 compared to Q3 2023, while gross margin decreased to 83.7% from 84.5%[124]. - Cost of Professional Services rose by $92,715, or 6.9%, in Q3 2024 over Q3 2023, with gross margins increasing to 45.0% from 42.6%[125]. Customer Contracts - The company secured a renewal contract with its largest customer, with an estimated net rate increase of approximately 21% effective October 1, 2023[133].