Intellinetics outlines SaaS revenue growth for Q4 and 2026 with expanded backlog and recurring storage services

Earnings Call Insights: Intellinetics (INLX) Q3 2025

MANAGEMENT VIEW

* CEO James DeSocio reported that Intellinetics is moving past the temporary slowdown in professional services revenue, citing the renewal of a large state contract in June and an improving operations trend. He stated, "We've rebuilt our backlog with orders already in hand. That backlog will bring our digital transformation work back to historical levels and will carry us beyond the end of the second quarter of fiscal 2026, even without closing another major deal."
* DeSocio highlighted expansion into microfilm and microfiche storage, noting strong interest and preorder volumes, and confirmed that this offering is in addition to a large microfilm conversion project set to generate revenue in Q4 and beyond.
* The CEO discussed continued investment in AI across development and sales functions, emphasizing momentum in two key markets: homebuilders and K-12 education. He indicated that despite challenges in the homebuilder segment, SaaS revenue is expected to grow.
* DeSocio shared that the K-12 payables automation solution, launched in April, is gaining traction, citing a webinar with 67 school districts and 31 new SaaS deals closed in recent weeks. He also noted, "Between our 2 K-12 partners, we have around 4,000 targeted prospects for these solutions."
* CFO Joseph Spain stated, "Total revenue for the quarter ended September 30, '25, decreased 12.8% to $4.0 million as compared to $4.6 million for the same period last year. SaaS, including hosting revenue, grew 14.6% to $1.6 million for the quarter from $1.4 million for the same period last year, primarily driven by continued early payables automation successes."
* Spain added, "Consolidated gross margin percent increased 434 basis points to 64.2% for Q3 this year compared to 59.8% last year. The consolidated increase was driven by a favorable revenue mix, a result of increased SaaS volume and reduced professional services volume."
* Spain concluded, "At September 30, '25, we had cash of $3.2 million... We've had no debt on the balance sheet since we paid the last of it in June of this year."

OUTLOOK

* Spain said, "We expect 2025 revenues will be less than 2024 revenues driven by weakness in professional services in the first 3 quarters of the year. However, we expect to still grow SaaS revenues and maintain positive adjusted EBITDA. We anticipate fourth quarter 2025 SaaS revenues to be higher than fourth quarter '24 SaaS revenues, and we further anticipate fiscal year 2026 SaaS revenues to exceed 2025 SaaS revenues."
* The company maintained its previous expectation that 2025 adjusted EBITDA will be reduced by more than half compared to fiscal year 2024 due to increased investments in sales and marketing.
* No explicit quantitative guidance for EPS or total revenue was provided for future periods.

FINANCIAL RESULTS

* Total revenue for Q3 2025 was $4.0 million, down from $4.6 million in Q3 2024. SaaS revenue grew to $1.6 million from $1.4 million in the prior year period. Professional services revenue decreased to $1.9 million from $2.6 million, and software maintenance services revenue declined by $42,000.
* Consolidated gross margin increased to 64.2%. SaaS margins rose to 85.1%. Professional services margins fell to 40.5%, and storage and retrieval margins increased to 71% from 50.6%.
* Operating expenses were $2.0 million, a decrease from $2.1 million in Q3 2024. The company reported a net loss of $370,000, or $0.08 per share, compared to a net loss of $393,000, or $0.09 per share, in the prior year period. Adjusted EBITDA was $105,000, down from $480,000.
* Intellinetics ended Q3 2025 with $3.2 million in cash and no debt.

Q&A

* Howard Halpern, Taglich Brothers: Asked about annual recurring revenue from 31 new K-12 SaaS deals and potential ramp-up. DeSocio responded that these deals will drive over $100,000 in annual ARR with potential for growth, and that the company has direct access to 1,300 additional customers through a new agreement.
* Halpern: Inquired about homebuilder customers expanding into other modules. DeSocio said there is growing interest in document management modules beyond payables, and that customers often expand usage as volumes grow. Spain clarified that an example of ARR growth was "volume only."
* Halpern: Queried about the new storage service as a recurring revenue model. DeSocio confirmed it is a recurring model, not SaaS, and applicable to K-12 and university markets.
* Halpern: Asked about SaaS churn. DeSocio and Spain stated churn has historically been under 5%.

SENTIMENT ANALYSIS

* Analysts were engaged and focused on details around recurring revenue potential, new deals, churn, and expansion into adjacent markets, with a neutral to slightly positive tone.
* Management maintained a confident and optimistic tone throughout, with DeSocio stating, "We're very well positioned for continued success" and expressing excitement for growth in both product and market segments.
* Compared to the previous quarter, management's tone was more upbeat about backlog and pipeline recovery, while analysts maintained a consistent focus on execution and growth drivers.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language was unchanged in that total 2025 revenue is expected to be below 2024, but SaaS revenue is projected to grow and adjusted EBITDA to remain positive, with increased investments in sales and marketing highlighted in both calls.
* Strategic focus remains on SaaS growth, AI implementation, market expansion in homebuilders and K-12, and building recurring revenue through storage services.
* Key metrics showed SaaS revenue growth and improved gross margin, but continued weakness in professional services and a smaller net loss.
* Management's confidence improved, noting a rebuilt backlog and a clear path to restored service levels, while analysts' tone stayed consistent and detail-oriented.

RISKS AND CONCERNS

* The primary challenge remains softness in professional services revenue, though management cited a rebuilt backlog expected to sustain historical activity levels into late fiscal 2026.
* Management acknowledged ongoing industry headwinds in homebuilding and K-12 but highlighted diversification, new solutions, and recurring storage services as mitigation strategies.
* Churn in SaaS is reported as historically low, with management monitoring customer retention closely.

FINAL TAKEAWAY

Intellinetics management emphasized that the company is at a pivotal moment, having rebuilt its professional services backlog and expanded recurring revenue streams in SaaS and storage. With a strong sales pipeline and targeted investments in sales and marketing, the company expects SaaS growth to continue in Q4 2025 and into 2026. Management remains confident in its strategy to leverage AI, deepen partner relationships, and drive cross-selling, positioning the company for continued growth despite ongoing professional services headwinds.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/inlx/earnings/transcripts]

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