Ipsidy Inc

NASDAQ:AUID

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and good evening, everyone. I'm Graham Arad, the authID General Counsel. Welcome to the authID Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. With me on today's call are our CEO, Rhon Daguro; our CFO, Ed Sellitto; and our CTO, Tom Szoke. By now, you should have access to today's press release announcing our third quarter 2023 results. If you have not received this, the release can be found on our website at www.authid.ai under the Investor Relations section. Turning to Slide #2. Throughout this conference call, we will 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 adjusted EBITDA information to the most directly comparable GAAP financial information appear in today's press release. Before we begin our formal remarks, let me remind everyone that part of our discussion today will include forward-looking statements. Such forward-looking statements are not guarantees of 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 Form 10-K and other filings, which are made available at www.sec.gov. And for those on the webcast, who are watching the slides, please know that we will be advancing the slides for you. I'd now like to introduce our CFO, Ed Sellitto.

[Ed Sellitto, executive]

Thanks, Graham. Before jumping into the results for this quarter, I first wanted to say I'm excited to be here today on my first earnings conference call since joining authID in August. It's a pleasure to collaborate closely with our CEO, Rhon Daguro, as well as the rest of our executive leadership team and Board of Directors to help the company achieve our revenue growth targets and drive value for both our customers and shareholders. Now turning to Slide #3. The following highlights compare results from continuing operations for the quarter and 9-month period ended September 30, 2023 with the quarter and 9-month period ended September 30, 2022 unless otherwise specified. Total revenue for the quarter was $0.04 million compared with $0.03 million a year ago. For the 9-month period ended September 30, 2023, total revenue was $0.12 million compared with $0.26 million a year ago. The reduction was primarily attributed to revenue from a legacy authentication product that was discontinued in April 2022. Verified License revenue was unchanged at $0.1 million in both 9-month periods. Q3 operating expenses declined by 33% to $3.8 million compared with $5.7 million a year ago. For the 9-month period in 2023, operating expenses declined by 55% to $7.6 million compared with $16.9 million for the same period last year. The reduced expenditure reflects the company's cost-saving measures taken in the first half of this year, resulting in lower headcount costs and lower third-party vendor costs. Net loss improved by 40% to $3.7 million for the third quarter, in line with the improvement in operating expenses and included noncash and one-time severance charges of $1.8 million compared with a loss a year ago of $6.2 million, with noncash and one-time severance charges of $2.9 million. For the 9-month period in 2023, net loss was $16.4 million, with noncash and one-time severance charges of $10.5 million compared with a net loss for the same period last year of $17.7 million, with noncash and one-time severance charges of $8.5 million. The increase in noncash charges in the 9-month period of this year was primarily due to the one-time conversion expense of $7.5 million related to the exchange of convertible notes for shares of our common stock that the company executed in May 2023. Net loss per share declined to $0.47 for Q3 compared with $2 a year ago. For the 9-month period in 2023, net loss per share declined to $3.05 compared with $5.80 for the same year period last year. Moving to Slide #4. We are also presenting our Remaining Performance Obligation, or RPO, as noted in our financial statements for the period, which provides a sense of the expected revenue to be recognized from our signed contracts. As of September 30, 2023, our total RPO is $1.87 million, which includes deferred revenue of $0.1 million as noted on our balance sheet. The remaining $1.77 million represents additional non-cancelable revenue under contracts that have been signed since May and have not yet been recognized. This revenue is expected to be recognized over the entire life of these contracts, which are typically signed with a 3-year term. Based on contractual commitments and expected usage patterns, we expect to recognize approximately 1/3 of this RPO as revenue over the next 12 months. The RPO is based on contractual terms agreed by our customers, but the expected time to recognize revenue is based on our best estimates, given the current known facts and circumstances. Of course, while the RPO is based only on contractual commitments, we have reason to believe that each of these customers will exceed their minimum commitments. Turning to Slide #5 for our non-GAAP results. Adjusted EBITDA loss improved by 35% to $2.1 million for Q3 compared with $3.3 million a year ago, primarily due to cost savings from our 2023 restructuring plan. For the 9-month period in 2023, adjusted EBITDA loss improved by 34% to $6.0 million compared with $9.1 million for the same period last year. The company defines booked annual recurring revenue, or BAR, as the amount of annual recurring revenue we believe will be earned under our customer contracts looking at 18 months from the date of signing of each contract. Net BAR reflects the deduction of BAR from contracts previously included in reported BAR, which were subject to attrition during the quarter. We're excited by the momentum the team is building with new bookings. Both gross and net BAR from contracts signed in the third quarter of 2023 were $1.0 million, approximately 25x the $0.04 million signed in Q3 of last year. Q3 BAR also increased quarter-over-quarter, over 4x $0.2 million this team signed in Q2 2023. The company also defines annual recurring revenue, or ARR, as the amount of recurring revenue derived from the sales of our verified products during the last 3 months of the relevant period as determined in accordance with GAAP multiplied by 4. The amount of ARR as of September 30, 2023, was $0.17 million compared with $0.12 million of ARR as of September 30, 2022. With that, I'd now like to turn the call over to our CEO, Rhon Daguro.

[Rhoniel Daguro, executive]

Thank you, Ed. I'm very excited to have you here on the authID leadership team, [Sells]. It's been a real pleasure working with you again. Let's go to Slide #7. So over the last few months, we've quickly built a high-performance sales machine. This is my second quarter as CEO of authID, and I'm happy to reiterate our CFO's earlier message that our Q3 was another record sales quarter for authID. Our new sales executives, who joined us only in June and July, put customer wins on the scoreboard in the third quarter valued at $1 million in new BAR. Again, these BAR bookings represent more than 4x the highest previous total gross BAR that my team secured in the second quarter of this year and more than 25x the BAR earned in Q3 of 2022. This is phenomenal for a team who only started 4 months ago. The highlighted customer wins include a multinational fintech and inclusive financial network that allows individuals to establish trust and creditworthiness without the need for credit history, credit score or pay slips. The second win was a U.S.-based telehealth company selling personal care products and over-the-counter and prescription drugs online. Our third win was an expansion opportunity with a fintech platform for Caribbean Merchant Payments. And lastly, we booked a full-service commercial and consumer financial institution providing high-quality banking services. Since the refresh of leadership in May of this year, the authID story has been completely rewritten in every facet of the business. We have strengthened our foundation, built on top of that foundation, applied sales discipline to our engagements to maximize how we secure wins and help our customers, and improved our efficiency in bringing customers live and successful in their deployments of authID's products. Let's move to Slide #8. AuthID is growing. We are delivering sales wins. We are well-positioned for continued growth. Our 2023 momentum and our future success is grounded in these 3 factors. First, the market for end-to-end identity solutions for both the workforce and consumer application continues to be very large, and we are seeing high growth in demand for our solutions. Second, authID has the right product, with the clear value over the competition. Delivering the best user experience for identity verification and authentication, authID leads in accuracy and speed. We perform back-end processing in 700 milliseconds, about half a second, which is far outshining our competition who struggle to offer speeds of 4 to 9 seconds as tested by customers. Said differently, authID is 5x to 10x faster than our best competition. And the third pillar, we have the right team delivering the right messaging. Over the last few months, we assembled a strong group of identity domain experts who have done this before. We booked early customer wins through the team's deep identity expertise and a proven sales framework that we have leveraged for high growth at previous organizations. Let's turn to Slide #9. So what is driving the high growth for integrated identity platforms? Well, certainly that demand is reflective of the burgeoning digital economy, but that growth is also driven by the exponential rise in data breaches, phishing schemes and account takeovers. In 2022 in the U.S. alone, there were over 1,800 cyberattacks that impacted over 420 million individuals. And what is at the core of these cyberattacks? Unfortunately, companies simply do not know who is behind the device. Let's take the highly publicized hack of multiple casino giants that resulted in over $100 million in losses. These breaches started when a fraudster calls into the casino help desk and impersonate as an IT employee. They achieve an account takeover and they carry out a very successful ransom attack. The casinos didn't know who called the help desk. They didn't know who access the accounts. So unfortunately, they simply trusted that the credentials provided were in the possession of the rightful owner. There is a lesson here. Assumptions of identity trust are no longer sufficient security. And because of the continued breaches like this, there are many companies who recognize this problem, and those companies are looking for the solution from authID. Let's go to Slide #10. So why are they turning to authID? Our customers are vigilant in their mission to protect their company's most critical assets, their corporate data, their employees and their consumers. They understand that the device authentication alone no longer provides the security needed to fight today's ramp in cyberattacks and account takeover schemes. And they understand that biometrics deliver the absolute identity assurance required to protect their assets. So why haven't biometrics been widely adopted? Well, until now, no one could get the user experience fast enough without compromising accuracy. Other providers who have played in this space require the user to download a separate authenticator app, force the user to turn their face left, turn their face right, link, smile, all just to take a photo, and all of these steps and puts tremendous friction on the user. Here at authID, we pioneered the delivery of world-class cloud biometrics with precision, speed and accuracy in 700 milliseconds or less. We deliver the fastest frictionless identity authentication experience performed over the Web without any additional expensive hardware. So like Face ID, our tech auto-launches the camera, snaps the user's selfie with no intervention, no gestures, no typing, no nothing. It just works. So to achieve this high security and yet frictionless experience, the authID identity lifecycle platform seamlessly coordinates the complexity of 3 stages to establish the biometric root of trust and deliver the requested results to our customers, again, in the market-leading 700 milliseconds or less. Our customers should not have to compromise cybersecurity and identity assurance for a frictionless user experience. AuthID delivers on both. Let's go to Slide #11. And it's just not me who's saying that our technology is great. In early October, ABM Industries, our Fortune 500 customer, was named as a recipient of the distinguished CISO 50 Award. Judged by a leading panel of security experts, including practitioners, academics and Chief Security Officers, the CISO 50 Award recognizes annually 50 organizations for security projects based on their innovation and business value. AuthID's Chief Technology Officer, Thomas Szoke; and Chief Product Officer, Jeremiah Mason, were honored to join ABM Chief Information Security Officer, Stephanie Franklin Thomas, in receiving this award. The CISO 50 award reflects a third-party appreciation by leading security and professionals for authID's next-generation biometric authentication and our groundbreaking ability to ensure ABM knows who's behind every shared device. Nothing is more rewarding to a software company than having outside professionals acknowledge the innovation and value your services deliver. Let's move to Slide #12. Over the last 6 months, we have transformed this company into a sales-led organization of deep subject matter experts. To build a high-growth business, the sales team must understand how to build predictable pipeline, predictable bookings, and predictable revenue. Our sales leaders and the pipeline group, who's our lead generation team, are working side-by-side to create a strong foundation to build pipeline and a strong foundation to win opportunities. Our team has also established a robust process to take new customers live as quickly as possible. And for existing authID customers, we focus on delivering outstanding value to ensure we win renewals, maximize opportunities to expand our relationships and, of course, minimize churn. Let's go to Slide #13. Our go-to-market efforts are resonating in our target key verticals who are looking for fast, convenient and highly accurate solutions to stop fraud and streamline onboarding. These markets also recognize that blindly relying on passwords and authentication of knowledge or device possession no longer works. Our top 200 accounts, which is where we're focused on, across these top 200 targeted accounts fall across the largest markets, which include financial services, healthcare, e-commerce, gig economy and cybersecurity. Our sales leaders are working closely with prospects to define and deliver solutions for the major use cases shown here, with a strong emphasis on those opportunities where you see a check-plus Okay, Let's go to Slide #14. So over the third quarter, our sales team grew our pipeline an astounding 800% to over $7.4 million in opportunities across our targets. These efforts put us well on our way to a 12-month target in sales pipeline of $30 million. As I said earlier, I am very pleased that our Q3 sales wins of over 1 million placed us on a target to achieve our previously stated June 2024 goal of $3 million in BAR. But I've got better news. Let's go to Slide #15. I'd like to finish with this message. I am extremely pleased with the momentum we've built over the last few months. And I'm even more excited to announce that, today, we are now projecting to do better than our original booking targets for June 2024. With an expansion of prospects and use cases in our pipeline, we are doubling our estimated booked annual recurring revenue target from $3 million to $6 million by Q2 of 2024. We are also pleased to provide a target of $9 million in BAR for the full calendar and fiscal year of 2024. To overcome the challenges of previous regimes, we have preserved the best of what authID had and we added the industry's deepest domain expertise in identity over the last 4 months to truly create a best-of-breed team for sales and execution. We also continue to innovate on our roadmap to deliver new technology that stays ahead of the fraud trends and allows us to be thought leaders to our customers. I do want to take a moment to thank the entire authID team for all their hard work and dedication. I also want to thank our investors for their continued support in AuthID, as well as our Board. And together, we have positioned this company for greater success. We would now like to open up for questions. Let's turn back to Graham, who will moderate the questions.

[Graham Arad, executive]

Thank you, Rhon. [Operator Instructions] While we're waiting, I'd like to give a plug for an event tomorrow. Rhon Daguro will be participating in a cybersecurity panel hosted and broadcast by Nasdaq on their Trade Talks broadcast at 1 p.m. Eastern Time tomorrow afternoon. You can watch it on nasdaq.com or on the YouTube channel.Whilst we're waiting for questions, Ed, I think it will be helpful. You've reported this time for the first time on RPO. And I think it's a significant number, which perhaps you could explain a little better in lay terms what this means in terms of the contractual commitments that the company has entered into and the significance, looking forward, to the future revenue trends.

[Ed Sellitto, executive]

Yes, absolutely. Thanks, Graham. So give a little bit more color to that, our remaining performance obligations are driven by actual committed contractual terms that our customers are required to pay us as part of the deals that we sign. So this is important because, as in the past, we may have signed a customer with expectations of volume and revenue. We have actual firm commitments from these customers that represent what we disclosed in our RPO.We fully intend and have contractual obligations for that to be turning into revenue as we go live with those customers, and we do expect that to start showing up in our revenue soon. So we're excited to have this as part of something that we can report now and can watch that continue to grow and convert into revenue in the coming quarters.

[Graham Arad, executive]

Okay. Thank you. And on that note, there's been a question raised about how we move from BAR to ARR. What is the process from a company point of view and from an accounting point of view? Can you give a little more color on that, please?

[Ed Sellitto, executive]

Sure. So when we talked about booked ARR, or BAR, that is the expectation when we sign a new customer with a new deal, the annual recurring revenue we expect from that customer at 18 months from signing. So to get from the initial booking of that BAR to ARR, what typically happens is we would need to get that customer live with our product. So we have building a robust implementation plan with our customers and process on our end to get them live as quickly as possible, getting value out of the service.Once we go officially live, we'll start being able to recognize our committed revenues at that time. And then, additionally, the volumes that that customer will put through our product will begin to ramp. As those ramp to their fully ramped expectation, we expect that to even exceed our commitments and get to the ultimate annualized recurring run rate of revenue at 18 months from signing. But we will start seeing revenue much earlier than that.

[Graham Arad, executive]

That's great. Thank you. Rhon, we've had a question relating to the expected growth, obviously very positive results so far in the last quarter. But what do you see as the biggest headwinds potentially facing us in the upcoming year to ensure that -- which may prevent or restrict that growth?

[Rhoniel Daguro, executive]

Well, when you're implementing a new technology like biometrics, like I said before, the market hasn't widely adopted biometrics because of the speed. The speed simply was just too cumbersome, too slow, too clunky. And the big challenge that we have ahead of us is to get that message out to as many people as possible. And we're small. We're still limited. Obviously, there's limited resources, and we're not as big as we would like to be. But we're getting there, and we're actually getting there way faster than we ever planned.Like I said, we revised our targets. So based off of the resources that we had and using good formulas from our previous experience in growing a business this fast, we're growing faster than even some of the previous organization we were part of. But our biggest challenge will be is how to get that information out there faster and to the right people who care the most.

[Graham Arad, executive]

Thank you, Ron. I suppose the other aspect to this is competition. What are you seeing in terms of how we're managing to win deals against competition? And who do you feel are our biggest competition?

[Rhoniel Daguro, executive]

Well, the good news is the competition that are out there that are doing biometrics and doing authentication and biometrics, they've already been in this space, and they've been teaching and educating folks as much as they could around the new opportunities of introducing biometrics into their identity workflows and their identity security strategies. But simply, the speed, it just wasn't there, and the speed isn't there, and it would make people a little gun-shy to deploy something that would bring friction to a user like 5 to 9 seconds. That's a lot. I mean, typing in your password and doing those more archaic methodology approaches, just biometrics doesn't seem to be a lot better.The reason why we have this edge and the reason why we welcome the competition and the reason why we like that the competition exists is we're just doing exactly what they want, but we're doing at the speed that they want to do it that. And that gives us that opportunity and the edge over the competition.

[Graham Arad, executive]

Okay. Thank you. We've had a question about retention rates. And I guess the specific focus there would be what do we do? How do we manage to ensure that we do keep our customers after we've gone through the hard task of winning them? What are we doing to make sure that we keep our customers and keep them happy?

[Rhoniel Daguro, executive]

Well, we follow a really strict formula in helping our customers. One, we define our customers actually as partners. And as a partner, you do several things. So on a quarterly basis, we work with our partners, and we actually present to our partners, how we're performing, how we're not performing, what we can do better, and then share what are the things that they're trying to achieve to make sure that we're aligned with that. And we do that quarterly, and we call them quarterly business reviews.So we meet with our customers on those executive leadership time periods we call the QBRs, but then, at the same time, we're also working with our customers on a weekly basis to make sure that, 1, the technology is performing; 2, it is adapting and adjusting to some of the changes that maybe our customers may need, and we're really providing that white-glove treatment with our customer. Secondarily, when you become the central authentication authority for all identities across the enterprise and you perform, then there's no reason to be removed from the platform. So typically, solutions, like identity solutions like ourselves, become super, super sticky, which is why we sign deals that are 2 to 3 years, because sometimes it even takes 6 to 7 months just to implement. So our contracts represent the investment in a time of investment that these companies want to make sure that the technology works. And as long as we perform, and as long as we're great partners, it becomes a very super-sticky business for us.

[Graham Arad, executive]

That's great. Thank you, Ron.That seems to be all the questions we have right now. Do encourage investors to look at our website. All of these materials will be posted on our website as well as a recording of this. And if there are additional questions, you can post them to us at [e-mail]. Rhon, would you like to wrap up?

[Rhoniel Daguro, executive]

Yes. I definitely want to thank everyone for the questions, and especially for your time today. I do want to assure you that the authID team continues to be absolutely maniacally focused on our mission to help the digital enterprises know exactly who's behind every device. So thank you again. Have a great day.