authID Inc. (AUID) Q3 2021 Earnings Report, Transcript and Summary

00:03 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. [Operator Instructions] 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.

00:35 Thank you, operator. Good afternoon, everyone. I want to advise you that this slides today are, you can advance them yourself, 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. 01:01 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 maybe 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. 01:48 You can now advance 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 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 ten K, which is available at www.sec.com. 02:30 I'd now like to introduce our CEO, Tom Thimot.

02:36 Thank you, Grace. I'm on Slide three. I'm excited to speak to our investors today. This is a first update since our uplisted Nasdaq on August twenty fourth and not only will we talk about our results from the quarter, we will also share the exciting developments that came out of our market and product launches as 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 to replace those much hated one-time passcode and passwords. 03:11 Slide four I'm on now. Verified is our disrupted 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 code, not an answer to a question that can be sold in the dark web, verified upper secure self-service, account recovery, and reduces enterprise password reset costs with a simple turn of the risk and healthy verified authenticate 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 delight customers. 04:12 Moving to slide six. When I assume the our as CEO in June, my first task was to review the assets, resources and strategic direction of the company, assess where there gaps and room for improvement and then come up with the plan to rectify them. We knew that the company had best in class technology, but what else did it need to succeed. 04:35 First and foremost, the company needed capital and bigger platform from which to attract investors as well as to get comfort to prospective customers in particular major financial institutions. We therefore push ahead with our public offering and uplisted in the 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. 05:17 Nasdaq allows even the smallest investors to participate in an early growth company with large market opportunity. Leading and 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 you our loyal investors who helped us achieve this important milestone. 05:41 Moving to slide seven. 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 field. 6:11 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 engineer, 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. Our team members added, I'm proud 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 as one that's 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. 07:14 Moving to slide eight. 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 passcode and passwords, we want them to think of authID. I believe we accomplished our mission with thousands of guests with Money 20/20 lacking historically and singing along with our prince and personator the replacement of the song purple rain with our own addition of password pain. Even the prince and personator himself admitted but he feels the pain of passwords and one-time pin codes. By prominently featuring our name, our messaging, our people in our product and prominent view throughout the conference venue and across Las Vegas, we generated substantial brand recognition. Attendees throughout the show said over and over, yeah authID, I've heard of you, yeah. 08:12 Slide nine, during the Money 20/20 conference, our team we conducted a survey. The survey allowed us to gain insight about current and emerging trends on identity authentication and increased perception of authID as a thought leader in the identity space. The key findings of this survey include eighty eight percent of the respond in site familiarity with biometric authentication, eighty percent excited concerns about the enterprise risks associated with one-time passwords and knowledge based-authentication. 08:51 Seventy five percent are also concerned about customer dissatisfaction with OTP and KBA and them abandoning a transaction. Lastly, and most importantly, eighty four percent of the respond is plan to increase investments and identity authentication over the next twelve months. This survey tells us 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 the customer abandoning transactions midstream due to the friction and hassle, they come with these legacy authentication processes. It also tells us that our messaging on replacing valuable one-time pin codes and announced questions with cloud based biometric identity authentication is resonating. Finally, the survey data with responses from mid and high level executives across Fintech and banking support our belief that there is a large market opportunity for authID. 09:52 Moving to slide ten. We advertise and the party plans and password paying year over results. Over the three days 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 how they could quickly and easily deploy a cloud biometric selfie to replace one-time passcode. 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 chain to the device, such as a pin code sent over SMS to a device they may not have in their possession or authenticator app that you have to open on your mobile phone, our in line web browser based product means we are device agnostic. The user can authenticate their identity and access to an account easily on desktops, laptops, mobile tablets and phones, it means they do not have to download a separate mobile authenticator app in whether the profile or typing pin codes instead, they all authenticate easily by turning the phone towards their face. 11:21 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 lives healthy to a cloud biometric authentic – authID is verified in buys and delivers upon that vision. Other services that authenticate 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, and iOS device and android tablet or a Chromebook. The device does not matter. It's your space that authenticate you. 12:03 Moving to slide eleven and our off ID development and customer success team were also hard at work in the third quarter, launching with several significant clients and partners clearly we highlight two. Hamilton Reserve Bank. In the third quarter, we bought verified 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. 12:47 As HRB launches 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 international clientele. Our biometric identity products are helping HRB reduce operational cost of passwords, mitigate security risks arising from stolen passwords, phishing and account takeovers and ultimately deliver seamless customer experience that fully satisfied HRB insistence for the best international standards in AML, KYC and CFT compliance. 13:33 In the words of Prabhakar Kaza, the CEO of, HRB, Hamilton Reserve Banks new digital banking platform makes it possible to achieve our mission of onboarding one million new customer within the next twelve months. Providing our valued customers with a seamless authentication experience was paramount to our growth. AuthID.Ai is cloud based biometric authentication has helped us eliminate passwords and secure our customers value transaction including swift wire transfers and beneficiary changes. 14:09 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 roll 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 password list login for credit union members. 15:10 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 and 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. 15:36 I'm moving to slide twelve now. 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 to book 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 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 authentified 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 as we refer to it bar this highlights the value of recent contract signings based on the minimum amounts that each customer has committed to upon signing. 17:42 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. This is an average or 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. 18:27 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. 18:54 With that, I would like to turn the call over to Tripp Smith, our President and CTO, who will start with slide thirteen? Tripp?

19:04 Thank you, Tom. We put a major emphasis on our launch of the verified biometric authentication product, we said Money 20/20, 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 and self-service onboarding process that includes developer quick start documentation API documentation and a simple self-service service sign-up process that enables our customers to easily convert from a web form to a fourteen day trial of verified. 19:39 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 pace 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. 20:00 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 and we'll move to slide fourteen.

20:12 Thank you, Tripp. The financial results as we reported in our earnings release and recently filed Form 10-Q reflected changes in our operations and our business that have occurred and will occur as a result of our management changes, rebranding in building our sales focus – our focus sales 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 the future results at this time. Although, I will touch on certain financial trends that we expect see in the coming months. 20:52 All of my remarks will be comparing the third quarter September thirty twenty twenty one with the third quarter ended September thirty twenty twenty unless specified otherwise. 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 in 10-Q for reconciliation of adjusted EBITDA to comparable GAAP information. 21:51 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 principally due to higher noncash stock compensation expenses, salary cost and professional fees. The increased professional fees will principally due to the ships in our strategic focus. We can expect increases in the fourth quarter. We can expect expenses in the fourth quarter and beyond to continue to trend up 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 said both marketing and sales objective flow on the show and we have been tracking these metrics closely. We believe that Money 20/20 was successful in a worthwhile investment and will go and we'll convert to pipelines sales revenue as we close these opportunities. 23:33 Further, certain costs incurred in Q3 were required to relaunch the business and that 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 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 the accounting rules required to be recorded as a gain on the extinguishment of debt. 24:20 Following the successful public offering, the company had nine point two million dollars of cash at September thirty twenty twenty one, outstanding indebtedness and accrued interest was 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. 24:53 That concludes my presentation. Operator, we would like to open the call to questions. Thank you.

26:18 All right. I want to thank all our investors for taking the time to hear us today. And we look forward to reporting to you in the future. The one closing remark I'd like to say relates to our final slide in the deck, slide sixteen. 26:38 And that is 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 turn to eliminating all passwords the entire username and password ecosystem. Finally, that will enable us to be the company that helps businesses recognize their customer. 27:14 So, thank you very much from all of us at authID. Thank you for the opportunity to serve you our investors, our customers, our partners. Thank you. We can conclude the call operator.

27:33 And this concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please standby for your post conference.

Thank you.