authID Inc. (NASDAQ:AUID) Q2 2023 Earnings Call Transcript

authID Inc. (NASDAQ:AUID) Q2 2023 Earnings Call Transcript August 10, 2023

Operator: Hello, and thank you for standing by. Welcome to authID Second Quarter 2023 Earnings Conference Call and webcast. At this time all participants are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Graham Arad. You may begin.

Graham Arad: Thank you, operator. Good afternoon, everyone. With me on today’s call are our CEO, Rhon Daguro and our CFO, Annie Pham. By now, you should have access to today’s press release announcing our second 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. Turn to slide two. 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 you 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 were made available at www.sec.gov. We will have a question-and-answer session following our presentation. To participate in the Q&A, you must be registered on the telephone. You can find the link for telephone registration on the Investor Relations section of the authID website.

I’d now like to introduce our CFO, Annie Pham.

Annie Pham: Thank you, Graham. Turning to slide number three, the following highlights compare results from continuing operations for the quarter and six-month ended June 30, 2023, with the quarter and six-month ended June 30, 2022 unless specified otherwise. Total revenue was $0.04 million for the second quarter compared with $0.07 million a year ago. For the six-month period ended June 30, 2023, total revenue was $0.07 million compared with $0.2 million a year ago. The reduction was primarily attributed to revenue from a legacy authentication product that was discontinued in April 2022. Operating expenses declined to $2.8 million for Q2 compared with $6 million a year ago. For the six-month period in 2023, operating expenses declined to $7.2 million compared with $11.2 million for the same period last year.

The reduction was primarily due to the company cost savings measure, resulting in lower headcount and third-party vendor costs. Loss was $10.9 million for the second quarter, with non-cash charges of $9.2 million compared with a loss of $6.4 million a year ago with non-cash charges of $3.3 million. For the six-month period in 2023, loss was $16.1 million with non-cash and one-time severance charges of $12.2 million compared with a loss for the same period last year of $11.5 million with non-cash and one-time severance charges of $5.6 million. The increase in non-cash charges in the second quarter and six-month period 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 was $2.15 for the second quarter compared with $2.06 a year ago. For the six-month period in 2023, net loss per share was $3.91 compared with $3.80 for the same period last year. Turning to slide four, our non-GAAP results, adjusted EBITDA loss improved to $1.7 million for Q2 compared with $3 million a year ago, primarily due to cost savings from our Q1 2023 restructuring plan. For the six-month period in 2023, adjusted EBITDA loss improved to $3.9 million compared with $5.9 million for the same period last year. The company defines Book Annual Recurring Revenue or BARR, as the amount of annual recurring revenue represented by the estimated amount of annual recurring revenue we believe will be earned under such contracted orders, looking out 18 months from the date of signing of each customer contract.

The net amount of BARR reflects the deduction of the BARR of contract previously included in reported BARR, which was subject to attrition during the quarter. The gross amount of BARR from contract signed in the second quarter of 2023 was $239,000. The net amount of BARR was $221,000 after attrition, compared to $32,000 of BARR signed in the second quarter of 2022. The company defines annual recurring revenue or ARR, as the amount of recurring revenue derived from sales of all verified products during the last three months of the relevant period. In this case, the three months ended June 2023, as determined in accordance with GAAP multiplied by four. The amount of ARR as of June 30, 2023, was approximately $144,000, compared to approximately $118,000 in the second quarter of 2022.

Turning to slide five. Over the last quarter, we have made significant progress on our efforts to improve our balance sheet and financial position. In May, the authID team and Medicine Global Partners, our financial advisors, and sole placement agents executed a successful fundraise of $8.2 million in gross proceeds before expenses. The effort also included the cancellation of a $0.9 million note, including interest held by Stephen Garchik. Simultaneously with the fundraise, our team worked with our note holders to capitalize nearly all of the company’s convertible notes, totaling approximately $8.9 million by exchanging the debt for shares of common stock. We are pleased to see the continued confidence in the future of the company as shown by our existing investors, board members, and the interest from new shareholders.

Following the approval by shareholders at our most recent annual Shareholder Meeting, we completed a 1-for-8 reverse stock split of our common stock on Monday, July 10, 2023. As a result, every eight issued shares of common stock were automatically combined into one share of common stock. These efforts were critical to improving our balance sheet, reducing our cash requirements for a 12-month operating budget, and regaining compliance with NASDAQ listing requirements. Finally, as this will be my last quarterly earnings conference call with the company, I want to thank the investors, our Board of Directors, our CEO, Rhon Daguro, and my colleagues for this experience. I also want to welcome Ed Sellitto, as he prepares to take over the CFO role.

It had been a great honor to serve as a CFO, and I have every confidence in the company’s continued success and wish all of you the best for the future. With that, I’d like now to turn the call over to our CEO, Rhon Daguro.

Rhon Daguro: Thank you, Annie. I do want to take a moment to extend my sincere appreciation to you for all your hard work and valued insights over the last few months. Under extremely tight timeframes, you helped us close a recent fundraise and note conversion, as well as helping us regain compliance with the NASDAQ listing standards. You’ve been an integral part of helping lead authID, and I wish you all the best on your next endeavors. Turning to slide seven. So I came to authID because of the opportunity to build a high-performance sales machine for the company to achieve strong growth. To that end, it gives me great pleasure to welcome Ed Sellitto, who will join authID as the Chief Financial Officer, effective August 15, 2023.

Mr. Sellitto is a seasoned financial executive with over 15 years of experience in revenue optimization roles, supporting high-growth B2B and SaaS organizations that needed to be built and optimized for go-to-market operations. Ed has worked at companies including Zero Hash, Sprinklr, [inaudible], American Express, and News Corp. Ed earned his MBA in Corporate Finance and Strategy from the Stern School of Business at New York University. Having previously worked with Ed at an identity business where we grew ARR by over $100 million in three years, I very much respect his exceptional intellect and agility, and proven success in helping drive revenue optimization. I am confident that Ed will be integral to our efforts to grow our business, increase our sales, and advance authID to the next level of market leadership.

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To achieve high market growth, we also need a proven and accomplished sales team. It gives me great pleasure to introduce our new sales executives, Greg Manship, Dale Daguro, and Jeff Scheidel, who joined us in July to help us build a sales-centric organization, grow our pipeline, and put customer wins on the board. Greg, Dale, and Jeff bring a wealth of experience in sales leadership and business development. They are also leading identity domain experts who are highly versed in technical knowledge required to build credibility with our customers and present solutions to our customers’ challenges. Between them, they have decades of experience in the identity and access management space. Greg has many years in the identity sales and also has been through several successful exits in the space.

Dale, with years in identity access management, has personally designed and built solutions and user experiences for multiple organizations, including Oracle. Jeff has spent over a quarter century in the identity access management industry and even wrote a McGraw-Hill, best-selling book on the exact topic. All of them have built key customer relationships in major industries such as banking, credit, e-commerce, cyber security, and other verticals we are actively pursuing. Each of the VP of Sales will be responsible for executing authID sales strategy, developing and expanding key customer and partner relationships, and driving our revenue growth across these verticals. These additions to our sales teams are the right people at the right time.

They are hyper-focused on executing on a proven sales framework, launching our authID University, and strengthening the organization’s sales-first mindset. I am confident that Greg, Dale, and Jeff, along with our new CFO, Ed, will strengthen the current team, and together, we will be successful in accelerating authID’s growth. Moving to slide eight. One of my fundamental selling principles is that the key to long-term security sales success is delivering technology that offers an amazing user experience and enforces the highest levels of security. And more importantly for authID, our products must make the security seamless to the end-user. To that end, our product management, engineering, and development teams have been very busy over the last few months issuing six major releases to our verified platform.

We prioritize efforts to deliver maximum platform uptime and availability, improve accuracy and speed, and increase first-pass transaction success rates. We fortified our identity verification solution for our new customer onboarding by adding layers of additional fraud detection. We refined our user interface for both document and selfie capture, and delivered easy-to-use self-service onboarding workflows for our workforce customers. authID is at the forefront of accuracy and speed when it comes to biometric identity verification solutions. With our ability to perform lightning-fast backend processing in 700 milliseconds, that’s about a half a second, and this performance far outshines our competition who are at best offer speeds of five to nine seconds as tested by customers.

Said differently, authID is 5x to 10x faster than our best competition, which drives an amazing user experience. This is the value proposition customers are getting very excited about. This is what makes me confident that our continued investment and innovation of our patented identity platform will be authID’s defining value proposition to win the market. Turning to slide nine. So, in the short time since I joined authID, our sales team generated several strong customer wins in Q2, representing $239,000 in booked annual recurring revenue, which I’ll call BARR. The highest total BARR in the sales – the highest total BARR in sales that authID has achieved in a single quarter to-date, and almost equal to the BARR booked the entire year of 2022.

authID was selected by these new customers because of our ability to deliver fully orchestrated fast, accurate and user-friendly identity journeys across a range of use cases. For instance, financial institutions continue to demand streamlined onboarding and the need to prevent rampant identity fraud and security threats. Through a channel partner, we booked a large 600,000 member credit union who began generating revenue in the same quarter. This was my first deal as CEO in my first week at authID. This credit union is using authID’s biometric identity verification solution to streamline customer onboarding and weed out imposters. Our message for protecting workforce applications has also begun to resonate. In June, we signed an international recruitment platform, who will use our services to verify identity of new hires and automate identity document collection.

And last but not least, as seen with our most recent customer announcement, we were selected by ABM Industries, a Fortune 500 company and one of the largest, largest providers of facility services and solutions to secure employee access to their workforce applications on shared corporate devices. So let’s dig deep into that one a little bit more. So moving to slide 10. The contract with ABM Industries represents a significant win with the well-established Fortune 500 New York Stock Exchange listed company. ABM has over 100,000 U.S. and international service workers deployed across diverse locations, including aviation, education, healthcare and hospitality. In fact, the next time you walk through an airport, you will likely see the ABM logo on a number of service personnel.

With such a large workforce using shared corporate devices, authID’s ability to provide an easy-to-use, secure biometric authentication experience was critical to winning this deal. It’s always special when a customer confirms why authID was selected. So let’s turn to the words of Stephanie Franklin-Thomas, ABM’s Chief Information Officer, on why they selected authID. “ABM is focused on elevating the client and team member experience through technology and data. We selected authID for its combination of security, seamless user experience, shared device support, and cost-effective delivery. Their innovative biometric authentication solutions offer the ultimate in passwordless security, accuracy and speed.” In addition to being a big sales win for authID, this use case is also an optimal case study for solving one of the biggest challenges in workforce security, securing access to companies’ workforce applications on shared corporate devices.

Organizations that deploy shared devices battle constant attacks by cyber criminals who prey on passwords, legacy authentication and employee error. Corporate IT teams must address significant shared device authentication challenges, including difficult user experiences, shared passwords and expensive hardware tokens. These organizations are looking to move towards zero-trust architecture that mandates secure, strong authentication across all the applications. Therefore, the opportunity for helping organizations using shared devices advance their zero-trust security with secure and seamless biometric authentication is vast across various industries. For example, in healthcare, doctors, nurses, administrators, shared desktops, laptops, and mobile devices.

Retail, hospitality and entertainment segments also deploy a large number of shared tablets and shared workstations that will require employees to utilize a form of strong authentication. Until now, the de facto authentication for these devices has involved deploying unwieldy and costly key cards and hardware tokens, which can easily be lost, shared or stolen. authID solves for shared device security across all industries with next-generation biometric authentication. Delivering a highly secure and streamlined user experience, we accelerate a zero-trust security framework. Now, with the proven case study on ABM Industries, we will leverage this success to secure more customers with shared device challenges. Turning to slide 11. Now, to our go-to-market efforts.

In addition to the shared device opportunity, we see an expanded product market fit for our biometric identity verification and authentication solutions in FinServ, FinTech, healthcare, entertainment and the gig economy. These organizations are looking to authID for our fast, convenient, and highly accurate solutions that stop fraud and streamline onboarding, as well as providing strong authentication that protects against phishing and account takeover attacks, and reduces helpdesk costs due to the account and password reset request. Organizations should not have to compromise cyber security and identity assurance for frictionless user experience, which is why authID delivers both, and we will continue to focus on our mission to deliver the best solution on the market that eliminates authentication fraud, offers zero-trust protection, and provides the fastest and easiest user experience with the highest degree of accuracy.

Turning to slide 12. So in June, we engaged The Pipeline Group, which was instrumental in helping me build a unicorn business in my previous role. Bringing their lead generation technology and strong talent in generating high-quality first call meetings, TPG continues to drive high-value conversations with high-value targets for our sales organization. Since June 20, the TPG team has performed over 40,000 outbound calls, held over 2,100 live conversations, and generated 77 meetings with high-value targets. We completed half of these meetings where we created nearly $2.4 million in new opportunities over 31 business days. Doing the math, if TPG continues to add opportunities at this rate over the next 12 months, we will be well on our way to realizing our target of $30 million in qualified sales pipeline.

Moving to slide 13. We had a busy and successful second quarter. We enhanced our balance sheet; strengthened and added new features to our technology platform; and most importantly, we booked $239,000 in BARR in customer wins. Together, these efforts are helping us build momentum in our business, and I am confident that authID will continue to deliver based on this winning formula. First, our total adjustment market for integrated identity platforms is estimated to grow from $48 billion in 2023 to approximately $116 billion by 2027. We also continue to identify and expand a set of use cases with our prospects for our services to protect both the consumer and workforce applications. Second, authID has the right product with clear value over the competition.

Our identity platform delivers speed, accuracy and the best user experience for the identity verification and authentication that is second to none. And third, we have the right team. Our new CFO will bring his proven experience in revenue optimization. Our new laser-focused sales leaders will generate new opportunities and book additional wins. And finally, our authID University program will ensure that we build a high-performance organization populated with experts who execute based on proven sales framework and a sales-first mindset. With confidence in this winning formula, we continue to be on track with our target to deliver customer wins totaling $3 million in BARR over the next 12 months. In summary, I am extremely pleased with our success in strengthening our finances, enhancing our technology, generating sales leads and wins, and developing a sales-centric culture.

Once again, I want to thank all the investors for their continued faith in authID. We would now like to open the call to questions. I will turn the call back to Graham.

Graham Arad : Well, thank you, Rhon. We’ll now turn it back to the operator, who will explain again how to raise a question for those who have signed in and registered on the telephone line. Operator?

Operator: Thank you. [Operator Instructions].

Graham Arad : Thank you, operator. Whilst we are compiling the Q&A roster, Rhon, you’ve talked about all of the steps and achievements over the last quarter. What do you see as the next sort of major challenges and opportunities in the coming months through the rest of the year?

Rhon Daguro: Well, the exciting thing for us is that we’ve been spending a lot of time building the foundation; getting the finances right, getting the people right, and then really understanding how to articulate this message to fit the use case, and that’s what we’ve really been spending our time over the last four or five months. The challenge now over the next six to nine months is we need to execute on everything that we’ve been building on, really going after the customers, delivering this message to our customers, and do it as fast as possible. Really, that’s going to be the focus over the next six to nine months.

Graham Arad : Okay. Thank you. Operator, would you like to invite the first questioner, please?

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Q&A Session

Operator: Sure. One moment. Our first question comes from [Inaudible] with Diamond Equity. Your line is open.

Unidentified Analyst: Hi. Congratulations on the results. So I had a couple of questions. The first one was, maybe if you could give more clarity on sort of the size of the companies you’re targeting, the industries, and then what solutions are they utilizing right now? I don’t know if it’s two-factor, other software solutions, but what are they sort of comping your offering to?

Rhon Daguro: Let me – so there’s a couple of questions in there, so let me unpack them first. So the types of organizations we’re going after, we categorize them in three tiers. There’s Tier I, very, very large enterprise; Tier II, more of like a medium-sized enterprise; and Tier III, which is more of the startups or emerging technology. The way we approach it is, there’s a strategic set of accounts that we believe are the most strategic for authID, so very large and also strong use cases for us. And then there’s another set, which we call the fast 100 list, which is our customers who just perfectly fit our sweet spot. We can solve their problems very quickly and we can do a deal very quickly, and so that’s how we’re approaching it.

It’s about 200 accounts split across those three types of tiers. The use cases fall in two categories. Essentially our core use case is facial biometric authentication. Basically replacing the password with a very strong facial biometric authentication, essentially. So that is really the core use case. And then these customers that we’ve closed have also extended that use case not only for replacing passwords from personal devices, but also to replace passwords on a shared device, and that’s what we had highlighted there with ABM. The other use cases involve identity proofing or identity verification, which is the first time any company sees any identity. So is it Rhon really – is Rhon really Rhon or is it Tom pretending to be Rhon? That particular use case when somebody’s applying for a credit card, applying for an account, that is the secondary use case that we’re also seeing in these accounts, and luckily for us, both of those use cases have been served by these customers that we’ve closed recently in our Q2.

Unidentified Analyst: Great. No, perfect. That makes a lot of sense, and then my second question is, obviously the gross margin profile. Its early days of the revenue ramp, and obviously the revenue isn’t too material today, and you’ve guided for sort of – not formal guidance, but you’ve said an annual run rate that you’re sort of looking to hit. What do you see as sort of the margins or gross margin targets for this business? Obviously large SaaS companies are very high gross margin or Salesforce, Oracle in general. So I don’t know – do you have any thoughts on kind of the gross margin targets?

Rhon Daguro: I do. I do. Absolutely, Absolutely. And we have a formulary here. So essentially world-class gross margins, at least in this particular space that we’re aiming for, is above 85%, but we are – just to be clear, we are going to go win our first 10 Halo accounts, then we’re going to go win our next 100 accounts, and then we’re going to go win our next 100 accounts. So efficiency early on, as we get our customers excited about our technology, will maybe go below those margins, but ultimately we’re aiming for 80%, 85%.

Unidentified Analyst: Great. Perfect. No, that’s it for me. I’ll open the line for other questions. Thank you for addressing those points.

Rhon Daguro: Appreciate the questions.

Operator: Thank you. Please stand by for our next question. Our next question comes from the line of Ricky Solomon with Wilmot. Your line is open.