Information Analysis Releases Second Quarter 2021 Results Highlighted by Increase in Higher Margin Professional Fee Business

Rhea-AI Summary

Information Analysis Incorporated (OTCQB: IAIC) reported strong financial results for the second quarter and six months ended June 30, 2021. Professional fees surged to $3.3 million, up from $1 million, resulting in a gross margin increase to 20.2%. Net income reached $43,157, reversing a loss from the previous year. Total revenues rose to $8.2 million, driven by a 258.5% increase in professional fees, although software sales fell 63.9%. The acquisition of Tellenger is expected to enhance growth opportunities and expand IAI's capabilities in securing government contracts.

Positive

• Professional fees increased by 258.5% to $3.3 million in Q2 2021.
• Gross margin improved to 20.2%, up from 8.1% year-over-year.
• Net income of $43,157 compared to a net loss of $(34,620) in Q2 2020.
• Adjusted EBITDA rose to $342,428, moving from a loss of $(32,356).
• Total revenues for the six months increased to $8.2 million from $6.9 million.

Negative

• Software sales revenue decreased by 63.9%, impacting overall revenue mix.

Completed Key Acquisition of Tellenger, Inc.

FAIRFAX, Va., Aug. 16, 2021 (GLOBE NEWSWIRE) -- Information Analysis Incorporated (OTCQB: IAIC) (“IAI”) today reported its results for the second quarter and six months ended June 30, 2021, which were highlighted by a significant expansion in professional fee revenues, bottom-line profitability, and the successful closing of the acquisition of Tellenger.

Second Quarter 2021 Financial Highlights (all comparisons to prior year period unless otherwise noted)

• Professional fees increased to $3.3 million up from $1 million.
• Gross margin improved significantly, increasing to 20.2% compared with 8.1%; higher-margin professional fees accounted for 70.3% of revenues.
• Net income of $43,157, compared with a net loss of $(34,620).
• Adjusted EBITDA¹ of $342,428, compared with $(32,356).
• Secured financing consisting of a $1 million term loan and a $1 million revolving credit line.
  

Six Months 2021 Financial Highlights (all comparisons to prior year period unless otherwise noted)

• Total revenues increased to $8.2 million, compared with $6.9 million.
• Professional fees increased to $5.8 million up from $1.8 million
• Gross margin improved significantly, increasing to 24.2%, compared with 9.7%; higher-margin professional fees accounted for 70.8% of revenues.
• Net income of $313,972, compared with a net loss of $(160,789).
• Adjusted EBITDA of $750,422, compared with $(158,265).
  

IAI CEO Stan Reese commented, “Our second quarter was highlighted by very strong growth in professional fees. This is our highest margin revenue stream and the favorable mix shift in the quarter resulted in gross margin of 20.2%, compared with 8.1% a year ago. That allowed us to report a profitable quarter despite an increase in SG&A expense which was due in part to the closing of our acquisition of Tellenger in April. The integration of our two businesses has been seamless to date, and IAI is already seeing a meaningful expansion in our sales opportunities. Tellenger brought us added capabilities along with several key high-level clearances, allowing IAI to bid on previously unavailable government contracts.”

Mr. Reese continued, “We have aggressive growth plans for IAI and we have been investing in the resources needed to drive and support those plans through both operational and managerial improvements. The new members of our Board are providing new avenues for potential growth as a result of their industry connections and relationships. We have also added proven sales leadership to leverage and capitalize on those relationships, while solidifying our corporate infrastructure so we can properly manage that growth. While those costs added to our SG&A expense in the near term, we are very confident that those investments will yield a substantial return in the form of substantial growth, both organic and through additional acquisitions.”  

Total Revenues
Three and six-month revenues benefited from IAI’s SBA 7a modernization contract, which began in June 2020. The contract is expected to run through May 2027, providing a relatively stable level of professional fees revenues throughout its duration.

Total revenue was $4.7 million for the second quarter ended June 30, 2021, compared with $4.8 million in the prior year quarter. Professional fees increased $2.4 million, or 258.5%, while software sales revenue decreased almost $2.5 million, or 63.9%. The decrease in software revenue in 2021 versus the same period in 2020 is due to the non-recurring nature of software sales transactions, as well as the timing of recurring orders.

Gross Profit / Margin
Gross profit increased $566,912, or 145.7%, to $955,928, in the second quarter of 2021 over the second quarter of 2020, due to the increase in the revenue generated from professional fees. Overall gross profit margin was 20.2% in 2021, up from 8.1% in 2020, due to the increase in professional fees revenue relative to software sales revenue. Gross profit percentage for professional fees in the second quarter of 2021 was 28.0%, while software sales contributed a gross profit percentage of 1.8%.

Income (Loss) from Operations
Income from operations was $53,979 in the second quarter of 2021 compared to a loss from operations of $(34,450) in 2020.

About Information Analysis Incorporated
Information Analysis Incorporated (www.infoa.com), headquartered in Fairfax, Virginia, is an information technology product and services company. The Company is a software conversion specialist, modernizing legacy systems and securely extending their reach to the cloud and more modern platforms.

Additional information for investors
This release may contain forward-looking statements regarding the Company's business, customer prospects, or other factors that may affect future earnings or financial results. Such statements involve risks and uncertainties which could cause actual results to vary materially from those expressed in the forward-looking statements. Investors should read and understand the risk factors detailed in the Company's 10-K for the fiscal year ended December 31, 2020 and in other filings with the Securities and Exchange Commission.

For additional information contact:
Jeremy Hellman, CFA
Vice President
The Equity Group
(212) 836-9626

Matt Sands, CFO
msands@infoa.com
(703) 293-7925

Information Analysis Incorporated
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(unaudited)

				For the three months ended June 30,
					2021				2020
Revenues
	Professional fees			$	3,328,274			$	928,421
	Software sales				1,403,687				3,890,974
		Total revenues			4,731,961				4,819,395
Cost of revenues
	Cost of professional fees				2,397,895				601,672
	Cost of software sales				1,378,138				3,828,707
		Total cost of revenues			3,776,033				4,430,379
Gross profit					955,928				389,016
Selling, general and administrative expenses					800,137				366,170
Acquisition costs					82,756				-
Commissions expense					19,056				57,296
Income (loss) from operations					53,979				(34,450	)
Other expense, net					(10,822	)			(170	)
Net income (loss)				$	43,157			$	(34,620	)
Comprehensive income (loss)				$	43,157			$	(34,620	)
Net income (loss) per common share - basic				$	-			$	-
Net income (loss) per common share - diluted				$	-			$	-
Weighted average common shares outstanding
	Basic				11,980,397				11,211,760
	Diluted				12,665,267				11,211,760

Information Analysis Incorporated
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(unaudited)

				For the six months ended June 30,
					2021				2020
Revenues
	Professional fees			$	5,767,533			$	1,772,824
	Software sales				2,384,008				5,108,327
		Total revenues			8,151,541				6,881,151
Cost of revenues
	Cost of professional fees				3,865,594				1,181,303
	Cost of software sales				2,310,369				5,032,005
		Total cost of revenues			6,175,963				6,213,308
Gross profit					1,975,578				667,843
Selling, general and administrative expenses					1,345,800				706,983
Commissions expense					153,643				122,917
Acquisition costs					153,286				-
Income (loss) from operations					322,849				(162,057	)
Other (expense) income, net					(8,877	)			1,098
Net income (loss)				$	313,972			$	(160,959	)
Comprehensive income (loss)				$	313,972			$	(160,959	)
Net income (loss) per common share - basic				$	0.03			$	(0.01	)
Net income (loss) per common share - diluted				$	0.03			$	(0.01	)
Weighted average common shares outstanding
	Basic				11,633,464				11,211,760
	Diluted				12,305,182				11,211,760

Information Analysis Incorporated
Condensed Consolidated Balance Sheets

			June 30, 2021				December 31, 2020
			(Unaudited)
		ASSETS
Current assets
	Cash and cash equivalents		$	1,532,764			$	1,858,160
	Accounts receivable			2,097,521				1,442,231
	Contract assets			477,268				-
	Prepaid expenses and other current assets			138,686				142,770
		Total current assets		4,246,239				3,443,161
Intangible assets, net of amortization of $43,851 and $0				2,231,149				-
Contract assets - non-current				-				210,688
Right-of-use operating lease asset				297,620				51,405
Property and equipment, net of accumulated depreciation
	and amortization of $324,442 and $312,320			72,498				62,166
Other assets				5,706				6,281
		Total assets	$	6,853,212			$	3,773,701
		LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
	Accounts payable		$	747,942			$	103,646
	Revolving line of credit			402,306				-
	Notes payable - current			855,134				93,009
	Accrued payroll and related liabilities			571,089				375,168
	Commissions payable			256,075				181,626
	Other accrued liabilities			116,308				57,399
	Contract liabilities			105,884				946,884
	Operating lease liability - current			18,008				45,595
		Total current liabilities		3,072,746				1,803,327
Note payable - non-current				661,533				356,991
Operating lease liability - non-current				273,906				-
		Total liabilities		4,008,185				2,160,318
Stockholders' equity
	Common stock, $0.01 par value, 30,000,000 shares authorized,
	13,688,306 and 12,904,376 shares issued, 12,045,690 and
	11,261,760 shares outstanding as of June 30, 2021,
	and December 31, 2020, respectively			136,882				129,043
	Additional paid-in capital			15,629,898				14,720,065
	Accumulated deficit			(11,991,542	)			(12,305,514	)
	Treasury stock, 1,642,616 shares at cost			(930,211	)			(930,211	)
		Total stockholders' equity		2,845,027				1,613,383
		Total liabilities and stockholders' equity	$	6,853,212			$	3,773,701

Non-GAAP Financial Measures
In assessing the performance of our business, management utilizes a variety of financial and performance measures. The key measure is Adjusted EBITDA, a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) plus depreciation and amortization expense, net interest expense (income), and taxes, as further adjusted to eliminate the impact of, when applicable, expenses that are unusual or non-recurring that we believe do not reflect our core operating results. and non-cash stock-based compensation. We believe that Adjusted EBITDA is meaningful to our investors to enhance their understanding of our financial performance for the current period and our ability to generate cash flows from operations that are available for taxes, capital expenditures and debt service. We understand that Adjusted EBITDA is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare our performance with the performance of other companies that report Adjusted EBITDA. Our calculation of Adjusted EBITDA, however, may not be comparable to similarly titled measures reported by other companies. When assessing our operating performance, investors and others should not consider this data in isolation or as a substitute for net income (loss) calculated in accordance with GAAP. Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes. A reconciliation of net income (loss) to Adjusted EBITDA, the most comparable GAAP measure, is provided below.

We refer to our estimated revenue on uncompleted contracts, including the amount of revenue on contracts for which work has not begun, less the revenue we have recognized under such contracts, as “backlog.” Backlog includes unexercised contract options.

Reconciliation of Net income (loss) to Adjusted EBITDA
	Three months ended June 30,									Six months ended June 30,
(in thousands)	2021				2020					2021				2020
Net income (loss)	$	43,157			$	(34,620	)			$	313,972			$	(160,959	)
Adjustments:
Depreciation	6,739				1,738					12,122				2,986
Amortization	43,851				—					43,851				—
Interest expense (income), net	10,822				170					8,877				(1,098		)
Acquisition Costs	82,756				—					153,286				—
Non-cash stock-based compensation	111,862				356					139,573				806
Post-employment agreement	35,500				—					71,000				—
Moving expense	7,741				—					7,741				—
Taxes	—				—					—				—
Adjusted EBITDA	$	342,428			$	(32,356	)			$	750,422			$	(158,265	)

¹ Please see non-GAAP reconciliation on page 8

FAQ

What were the second quarter 2021 financial highlights for IAIC?

In Q2 2021, IAIC reported professional fees of $3.3 million, a gross margin of 20.2%, and a net income of $43,157.

How much did IAIC's professional fees increase in the second quarter of 2021?

Professional fees increased by 258.5% to $3.3 million in Q2 2021.

What was the reason for the decline in IAIC's software sales in 2021?

The decrease in software revenue was attributed to non-recurring sales transactions and the timing of orders.

What is the significance of the Tellenger acquisition for IAIC?

The Tellenger acquisition is expected to enhance IAIC's capabilities and expand access to government contracts.

How did IAIC's overall revenues perform in the first half of 2021?

Total revenues for the six months ended June 30, 2021, increased to $8.2 million, up from $6.9 million in the prior year.