authID Inc. Q3 FY2021 Earnings Call

Greetings and welcome to the Ipsidy Inc. dba authID.ai Third Quarter Twenty Twenty One Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Grace DeFries, SVP Marketing communications and Investor relations. Thank you. Ms. DeFries, you may begin.

Thank you, operator. Good afternoon, everyone. I want to advise you that the slides today are available for you to advance, so we will direct you as to which slide we're referencing. With me on today's call are Tom Thimot, our CEO; Tripp Smith, our President and CTO; and Stuart Stoller, our Chief Financial Officer. By now, you should have access to our third quarter twenty twenty one press release. If not, it can be found on our website www.authid.ai under the Investor Relations section. Throughout this conference call, we will also be presenting certain Non-GAAP financial information. This information is not calculated in accordance with GAAP and may be calculated differently from other companies' similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial information to their most directly comparable GAAP financial information appear in today's press release. You can now advance to the second slide. Before we begin our formal remarks, I need to remind everyone that part of our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of our future performance, and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Some of these risks are mentioned in today's press release, others are discussed in our twenty twenty Form 10-K, which is available at www.sec.com. I'd now like to introduce our CEO, Tom Thimot.

Thank you, Grace. I'm on Slide three. I'm excited to speak to our investors today. This is a first update since our uplisting on Nasdaq on August twenty-fourth, and not only will we talk about our results from the quarter, but we will also share the exciting developments that came out of our market and product launches at Money 20/20 on October twenty-fourth in Las Vegas, where we unveiled authID Verified, a self-service solution that allows you to use selfie cloud biometric authentication to replace those much hated one-time passcodes and passwords. Verified is our disruptive wedge. Our marketing and sales efforts are laser-focused on the messaging of replacing one-time passwords and knowledge-based authentication with cloud biometric authentication. With one selfie, Verified delivers increased accuracy far beyond the legacy authentication solutions since it ties who you are, your face, to an account, not just a device or a code or an answer to a question that can be sold on the dark web. Verified offers secure self-service account recovery and reduces enterprise password reset costs with a simple turn of the risk, and Healthy Verified authenticates a user with no friction, no struggle to find the pin code or remember the place where you met your best friend. Quite simply, Verified delights customers. When I assumed the role as CEO in June, my first task was to review the assets, resources, and strategic direction of the company, assess where there were gaps and room for improvement, and then come up with a plan to rectify them. We knew that the company had best-in-class technology, but what else did it need to succeed? First and foremost, the company needed capital and a bigger platform from which to attract investors, as well as to get comfort to prospective customers, in particular major financial institutions. We therefore pushed ahead with our public offering and uplisted to Nasdaq, which we were delighted to complete in a very quick two months culminating on August twenty-fourth. Becoming a Nasdaq-listed company establishes authID in the premier rank of identity providers in our industry. It provides validation to both investors and customers that we operate under the highest standards of corporate governance and with all transparency. Nasdaq allows even the smallest investors to participate in an early growth company with a large market opportunity. Leading the asset closing bell was truly a gratifying experience and certainly a combination of a lot of hard work. I want to thank again our team, our professional advisors, and our loyal investors who helped us achieve this important milestone. Our next urgent task was to build out the management and operational team, an important part of realizing our vision and preparing our company to replace one-time passwords and knowledge-based authentication revolves around team building and culture. For that end, our leadership team has been busy mapping out key positions, recruiting quality candidates, and hiring the most qualified experts in their respective fields. Over the past two months, we have added more than a dozen employees into key roles, including product management, sales, where we now have eight people comprising inside sales and sales director roles; customer success; marketing; and engineering. We have also onboarded several key vendors on the technical and engineering side, which is an efficient and productive way to allow us to scale faster as we move into growth phases. On the culture side, we have made significant strides in adding diversity, both gender and ethnic, to our management team and to our workforce. I'm proud to share that forty-five percent of the individuals are people of color and/or women. We believe that a culture built on diversity not only creates a more desirable workplace, but also one that strongly supports our commitment to ethical AI, enabling us to provide products that are agnostic to ethnicity and are more effective in the marketplace to better serve society more broadly. The point of our investment in the Money 20/20 event and this launch of our Verified product is simple: when businesses and consumers think of replacing one-time passcodes and passwords, we want them to think of authID. I believe we accomplished our mission with thousands of guests at Money 20/20 lacking historically and singing along with our Prince impersonator in the replacement of the song 'Purple Rain' with our own addition of 'Password Pain.' Even the Prince impersonator himself admitted that he feels the pain of passwords and one-time pin codes. By prominently featuring our name, our messaging, our people, and our product in prominent view throughout the conference venue and across Las Vegas, we generated substantial brand recognition. Attendees throughout the show repeatedly said, 'Yeah authID, I've heard of you.' During the Money 20/20 conference, our team conducted a survey. The survey allowed us to gain insight about current and emerging trends in identity authentication and increased awareness of authID as a thought leader in the identity space. The key findings of this survey include that eighty-eight percent of respondents are familiar with biometric authentication, eighty percent expressed concerns about the enterprise risks associated with one-time passwords and knowledge-based authentication, seventy-five percent are also concerned about customer dissatisfaction with OTP and KBA leading them to abandon a transaction, and lastly, and most importantly, eighty-four percent of respondents plan to increase investments in identity authentication over the next twelve months. This survey indicates that FinTech companies, banks, and credit unions are deeply concerned not only about the risks associated with one-time passwords and knowledge-based authentication but also about customer abandonment of transactions midstream due to the friction and hassle they come with these legacy authentication processes. It also indicates that our messaging on replacing valuable one-time pin codes and knowledge-based authentication with cloud-based biometric identity authentication is resonating. Finally, the survey data from responses from mid and high-level executives across FinTech and banking supports our belief that there is a large market opportunity for authID. We advertised and planned for the password pain year over results. Over the three days we were at Money 20/20, we met with hundreds of FinTech and banking executives as well as FinTech providers. Every day our booth was overflowing with attendees, speaking with our expanded sales team, watching demos and experiencing the seamless nature of our biometric web solution. Needless to say, they were all interested in gaining a greater understanding of how they could quickly and easily deploy a cloud biometric selfie to replace one-time passcodes. At Money 20/20, it became clear that we were the only provider of portable biometric authentication in the cloud rather than something that's chained to the device, such as a pin code sent over SMS to a device they may not have in their possession or an authenticator app that you have to open on your mobile phone. Our inline web browser-based product means we are device agnostic. The user can authenticate their identity and access an account easily on desktops, laptops, mobile tablets, and phones. It means they do not have to download a separate mobile authenticator app or worry about typing pin codes. Instead, they can authenticate easily by turning the phone towards their face. Satya Nadella, the CEO of Microsoft, famously said, 'It's not the device that's mobile, it's the person that's mobile.' By comparing a live selfie to a cloud biometric authentication, authID is Verified and delivers upon that vision. Other services that authenticate with a device or a pin code do not. AuthID provides frictionless biometric authentication through our web-based interface regardless of whether the user is on a Windows laptop, a Mac, an iOS device, an Android tablet, or a Chromebook. The device does not matter; it's your face that authenticates you. Our authID development and customer success team were also hard at work in the third quarter, launching with several significant clients and partners, clearly highlighting two. Hamilton Reserve Bank. In the third quarter, we went live with Hamilton Reserve Bank, a global bank serving a large and rapidly expanding worldwide clientele, supporting customer activities in more than one hundred and fifty countries and offering customer deposits in ten different currencies. This service was deployed as part of our partnership with Temenos, a global banking platform provider. As HRB launches a new digital banking service with the Temenos Infinity banking platform, with goals of enrolling one million customers over the next twelve to eighteen months, authID.ai is delivering high levels of identity assurance. HRB is expanding its international clientele. Our biometric identity products are helping HRB reduce the operational cost of passwords, mitigate security risks arising from stolen passwords, phishing, and account takeovers, and ultimately deliver a seamless customer experience that fully satisfies HRB's insistence on the best international standards in AML, KYC, and CFT compliance. In the words of Prabhakar Kaza, the CEO of HRB, 'Hamilton Reserve Bank's new digital banking platform makes it possible to achieve our mission of onboarding one million new customers within the next twelve months. Providing our valued customers with a seamless authentication experience was paramount to our growth. AuthID.ai's cloud-based biometric authentication has helped us eliminate passwords and secure our customers' value transactions including swift wire transfers and beneficiary changes.' Next, CU Nextgen, another key partner, launched in the third quarter was CU Nextgen, a credit union service organization supporting more than forty credit unions across the U.S. In the third quarter, CU Nextgen rolled out our identity services to their credit union portfolio to transform the way they recognize their members, both digitally and in person, with similar consistent experiences. AuthID is committed to helping financial services companies combat identity fraud by knowing with biometric certainty who is transacting on the platform. And again, let's turn to what our client Kent Zimmer, CEO of CU Nextgen, has to say about authID. 'By adding authID’s biometric identity services to our platform, we can help our members reduce risk, deliver enhanced identity trust, and offer the seamless convenience of passwordless login for credit union members.' In addition, in the last few weeks, we have added three customers in the financial services industry and one of the leading international nonprofit organizations. The authID value proposition, along with our new disruptive web Verified, is incredibly simple to understand, and I believe this will enable us to continue to increase deal flow as we execute on our mission. In order to achieve our strategic and financial objectives, we need to build on these early successes and increase the pace at which we achieve sales. We are using a proven playbook to generate leads, turn them into qualified prospects, and convert them into booked deals. Our marketing and sales teams have been working hard to focus our message and lead our efforts with what we consider to be the disruptive wedge, replacing one-time passwords and knowledge-based authentication with cloud biometric authentication for password recovery. We believe this will be a successful strategy for winning this market. How will we know? There are a number of key performance indicators or KPIs that I will be closely monitoring over the coming months in order to see that our efforts are working and to give management greater visibility towards future results. As we gather more data, we will start sharing these with analysts and investors, probably starting in the middle of twenty twenty-two to better inform the market and enable us to provide credible guidance. That's not something we are able to do today, but I will share with you some examples. To be clear, these metrics focus on our new identity products, Verified, Proof, and Authenticated, and any other innovative products we may launch in the identity space, rather than on our legacy business. You should be aware that most of these are Non-GAAP metrics that do not replace our GAAP financial statements, but we believe will enhance your understanding of our business. As you can see, we plan to capture several key performance indicators. First, identity booked annual recurring revenue, or what we refer to as BAR, highlights the value of recent contract signings based on the minimum amounts that each customer has committed to upon signing. Next is identity deferred revenue. This balance sheet item represents cash received that we cannot yet recognize as revenue under GAAP, but we expect to fully recognize in future periods. Finally, identity annual recurring revenue, or ARR, is an average of the monthly revenue earned in the previous three months and annualized by multiplying by twelve. This is perhaps the most significant on the fleet as it shows the current revenue run rate. It is also a KPI we will use to measure internal sales performance and incentivize our sales and management teams. As you can see, the focus is on generating revenue and gaining visibility as to what revenue we can expect based on hard facts, namely new contracts, cash, and billings. At the appropriate time, we will start to report these and other KPIs as part of our quarterly calls, and we believe that if we are able to show growth in these metrics, they will translate into progress on our goal of top-line revenue growth. With that, I would like to turn the call over to Tripp Smith, our President and CTO, who will start with slide thirteen.

Thank you, Tom. We put a major emphasis on our launch of the Verified biometric authentication product. Leading up to this launch, our engineering team invested efforts to develop new integrations, demos, and onboarding flows for our Verified products. As a result of our progress, we were able to achieve our goal of offering new customers a self-service onboarding process that includes developer quick start documentation, API documentation, and a simple self-service sign-up process that enables our customers to easily convert from a web form to a fourteen-day trial of Verified. We made our Verified products so easy to implement that a customer can onboard themselves and immediately integrate their authentication workflows with a simple copy-paste of just a few lines of code. As we move into the fourth quarter, key additions to the team, including our SVP of Product, Jeremiah Mason, will focus on continuing to enhance user experience and partner integrations. Thank you. Now I'd like to turn the call over to Stuart Stoller, our CFO, so he can provide an overview of our financial results for the third quarter of twenty twenty-one.

Thank you, Tripp. The financial results we reported in our earnings release and recently filed Form 10-Q reflect changes in our operations and our business that have occurred and will occur as a result of our management changes, rebranding, and building our sales-focused marketing efforts. As you can understand at this early stage in our product launch and sales and marketing activities, we will not be giving any guidance as to future results at this time. Although, I will touch on certain financial trends that we expect to see in the coming months. All of my remarks will be comparing the third quarter ended September thirty, twenty twenty-one with the third quarter ended September thirty, twenty twenty, unless specified otherwise. The quarter’s net loss increased by three point three million dollars from a year ago. Adjusted EBITDA loss rose by one point five million dollars during the quarter as we began to make investments in key new hires, marketing, and technology. Adjusted EBITDA is adjusted earnings for interest, taxes, depreciation, and amortization, and other non-cash or non-recurring items as defined by authID, and is a proxy for cash flow. You can refer to our earnings release and Form 10-Q for reconciliation of adjusted EBITDA to comparable GAAP information. Quarterly revenue was flat as our new marketing initiatives only began in the third quarter and the focused product offering was introduced at the end of October at Money 20/20. We expect these new marketing initiatives and product launches to be successful, in which case we anticipate revenue will expand in the fourth quarter and into twenty twenty-two. Tom has previously mentioned the metrics we will use to measure our progress. Operating expenses increased by four million dollars compared to twenty twenty, primarily due to higher non-cash stock compensation expenses, salary costs, and professional fees. The increased professional fees will principally be due to shifts in our strategic focus. We can expect increases in operating expenses in the fourth quarter and beyond as authID continues to invest in sales, marketing, and technology resources for the future. The fourth quarter will also include costs associated with Money 20/20. We believe that Money 20/20 was a successful and worthwhile investment, and will convert to pipeline sales revenue as we close these opportunities. Further, certain costs incurred in Q3 were required to relaunch the business and will not recur in future quarters. Of course, we will be cautious with our cash and capital as we expand the business. Other non-operating items improved in the quarter, as interest expense was dramatically reduced due to the majority of the company’s convertible debt being converted into equity in June twenty twenty-one. In addition, the company’s second PPP loan was forgiven in Q3 in accordance with federal law, and which accounting rules required to be recorded as a gain on the extinguishment of debt. Following the successful public offering, the company had nine point two million dollars in cash at September thirty, twenty twenty-one, with outstanding indebtedness and accrued interest of zero point seven million dollars, with the majority due in February twenty twenty-two. We expect the majority of the zero point seven million dollars to be converted to equity as the conversion price is six dollars per share relative to today's market price of approximately seventeen dollars. That concludes my presentation. Operator, we would like to open the call to questions. Thank you.

I want to thank all our investors for taking the time to hear us today. We look forward to reporting to you in the future. The one closing remark I'd like to share relates to our final slide in the deck. There really are authority large markets that we are pursuing. The first is to eliminate one-time passwords and knowledge-based authentication. Once we allow companies to eliminate one-time passwords and KBA, we can really shift towards eliminating all passwords in the entire username and password ecosystem. Finally, that will enable us to be the company that helps businesses recognize their customers.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby for your post-conference.

Thank you.