authID Inc. (NASDAQ:AUID) Q4 2023 Earnings Call Transcript

authID Inc. (NASDAQ:AUID) Q4 2023 Earnings Call Transcript March 20, 2024

authID Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Graham Arad: Good evening, everyone. My name is Graham Arad, General Counsel of authID. Welcome to the authID 2023 Annual Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation [Operator Instructions]. As a reminder, this conference 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 fiscal year 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. 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 available at, sec.gov. For those on the webcast, please note that we will advance the slides. I’d now like to introduce our CFO, Ed Sellitto.

Ed Sellitto: Thanks Graham. 2023 was a pivotal rebuilding period for authID where we leveraged the best that authID had, secured new identity domain talent, instilled new sales discipline and drove strong momentum in our book sales. I’m therefore pleased to report our 2023 GAAP and non-GAAP financial results and metrics. On Slide 3, the following highlights compare results from continuing operations for the 12 month period ended December 31, 2023 with the 12 month period ended December 31, 2022, unless otherwise specified. Total revenue for the year 2023 was $0.2 million compared with total revenue of $0.5 million for the 12 months ended December 31, 2022. The 2022 revenue included $0.3 million in revenue from a legacy authentication product that was discontinued in April 2022.

Verified license revenue was unchanged at $0.2 million for both 2023 and 2022. 2023 operating expenses declined by 52% to $10.9 million compared with $22.8 million for 2022. The reduced expenditure reflects the Company’s cost saving measures taken in the first half of 2023, resulting in lower headcount costs and lower third-party vendor costs. In line with the improvement in operating expenses, loss from continuing operations improved by 17% to $19.6 million in 2023, of which noncash and one time severance charges were $10.9 million. This compared with a net loss of $23.7 million in 2022, of which $12.3 million was noncash charges. The 2023 noncash charges were primarily comprised of the onetime conversion expense of $7.5 million related to the exchange of convertible notes per shares of our common stock that the company executed in May 2023.

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Q&A Session

Accordingly, net loss per share improved to $3.19 for 2023 compared with $7.72 for 2022. Turning to our non-GAAP results on Slide 4. Adjusted EBITDA loss improved by 24% to $8.7 million for 2023 compared with $11.4 million a year ago, primarily due to the cost savings from our 2023 restructuring plan. Turning to our bARR or booked annual recurring revenue. We define bARR as the amount of annual recurring revenue we believe will be earned under our customer contracts, looking out 18 months from the date of signing of each contract. Net bARR reflects the deduction of bARR from contracts previously included in reported bARR, which were subject to attrition during the period. We’re excited by the momentum the team is building with new sales bookings.

Both gross and net bARR from contracts signed in 2023 were $2.9 million, approximately 12 times the $0.23 million signed in 2022. The company also monitors annual recurring revenue or ARR, which is defined as the amount of recurring revenue derived from sales of our verified products during the last three months of the relevant period as determined in accordance with GAAP multiplied by 4. The amount of ARR as of December 31, 2023 was $0.2 million compared to $0.18 million of ARR as of December 31, 2022. Moving to Slide 5. As we first reported on our third quarter earnings results call, we also monitor and manage our remaining performance obligation or RPO as noted in our financial statements for the period in accordance with GAAP. RPO provides a sense of the minimum expected revenue to be recognized from our signed contracts based on customers’ contractual commitments.

As of December 31, 2023, our total RPO increased by 116% to $4.03 million from the third quarter of 2023 where total RPO was $1.87 million. The year end RPO includes deferred revenue of $0.13 million as noted on our balance sheet. Deferred revenue represents advanced payments received, which are not yet recognizable as revenue. The RPO also includes $3.9 million in additional noncancelable revenue under contracts that were signed in 2023 but which has not yet been recognized. We expect to recognize the year end RPO of $4.03 million over the entire life of the contracts, which are typically signed with a three year term. Further, based on our contractual commitments and expected usage patterns, we expect to recognize approximately one third of this RPO as revenue over the next 12 months.

While the RPO is based on contractual terms agreed by our customers, the expected time to recognize revenue is based on our best estimates given the current known facts and circumstances. Of course, while RPO is based only on minimum contractual commitments, we have reason to believe that each of these customers will exceed their minimum commitments. Turning to Slide 6. As part of our efforts to advance our short and long term growth, we actively review our progress through our revenue growth stages. Looking from left to right on this slide, we see our progression to sustainable revenue growth beginning with bookings as measured by bARR. From there, we actively monitor and manage our customers’ financial commitments through our RPO metric. As we onboard new customers and drive usage on our platform, those commitments are then converted into recognized revenue.

Finally, as our customer relationships mature, our focus will move to deepening these relationships with continued growth, renewals and the upsell of new value added services. As shown at the bottom of the page, our team had a pivotal year of growth in 2023 where we saw significant progress in the first two stages with almost $3 million in bookings and over $4 million in remaining performance obligation. In January 2024, with the funding provided to us in November ’23 by our investors, we brought on additional sales and sales engineering talent to help us continue our sales momentum by expanding our pipeline, advancing new opportunities and booking new sales. In 2024, we also added resources to our customer success team for diligently managing and progressing our customer implementations to shorten time to revenue and advance our revenue growth.

This team is laser focused on deploying and refining proven customer implementation methodology to help customers meet projected go live dates, establish full service rollouts across contracted use cases and meet and ultimately exceed their minimum contracted commitments. Finally, customer success works closely with our sales leaders to renew customer contracts, cross-sell existing solutions across additional enterprise use cases, and upsell new solutions. Based on our ability to turn contracts into live customers, we are confident that we’ll make progress toward increasing our ARR and overall revenue during 2024. In summary, I’m extremely excited to be part of authID’s growth story to advance our market position and to help lead us to the next stages of our growth.

With that, I’d like to turn the call over to our CEO, Rhon Daguro.

Rhon Daguro: Thank you, Ed. I’m also excited to be here, and I’m extremely proud of our 2023 accomplishments. I came to authID because of the strength and the value of its technology and the opportunity to build a high performance sales machine with the necessary go to market skills required to achieve long term growth. And in 2023, we laid a strong foundation for continued growth and market leadership. Let’s look at our progress. 2023 was a pivotal turning point for authID where we made a reboot across all facets of the business. In just a little over six months, we completely rewrote the authID story, secured new talent with deep identity domain knowledge, enhanced our patented identity platform, improved strong product market fit and demand for our biometric verification and authentication solutions.

Looking at the timeline. In late March and April, we saw the reconstitution of our Board of Directors and my appointment as CEO and Director. And in May, our investors provided infusion of capital and a debt to equity conversion that together helped improve our balance sheet, regained NASDAQ listing compliance. Our investors continue their support through an additional $9 million of fund raise of capital in November, for which I extend my deep appreciation for our investors, who put their faith in our ability to leverage what they have already built and gave us the opportunity to succeed. With funding in place, my next priority was to implement a sales discipline using a proven formula that I have successfully implemented as a former Chief Revenue Officer.

These efforts were rewarded quickly with record contract bookings of $239,000 in Q2, outperforming in one quarter all that the company had booked in all of 2022. Our contract with ABM Industries represented a first ever win with authID with a well established Fortune 500 New York Stock Exchange listed company. Critical to winning this deal was authID’s ability to provide an easy-to-use, secure biometric authentication experience on a shared computing devices that eliminated password risks and struggles for over 100,000 service workers. Moving to Q3. We added more talent to the team. Joining us in August as CFO, Ed Sellitto, has been integral to our success by providing strong discipline to our sales pipeline management and revenue optimization efforts.

Our new sales executives who joined in July quickly built out authID University and put customer wins on the Q3 scoreboard valued at $1 million in new bARR with new use cases across fintech, telehealth and workforce. Our Q3 booking contracts represented a successive 300% increase over our Q2 bARR, and more than 25 times the bARR earned in Q3 of 2022, truly phenomenal performance for our team who had only just started. In the fourth quarter, we continued to accelerate our momentum with bookings of new customers that included an international digital wallet and an entertainment social commerce platform. These wins notched a phenomenal bARR value of $1.7 million, a 64% increase over our third quarter bookings. While our sales leaders were busy winning deals, our highly skilled product and engineering teams maintain our commitment to delivering market leading technology and addressing customer needs through eight major releases and six minor versions of our identity life cycle platform.

They met critical customer security requirements with the Q4 renewal of our ISO 27001 certification. We were also recognized by outside professionals for innovation and value our services deliver when the CSO50 Award was presented to ABM for excellence in password less authentication. Supported by the commitment of our investors and the value of our patented technology, our teams secured a cumulative bARR of almost $3 million in sales bookings, representing 1,200% growth over 2022, and the highest total gross bARR that authID had previously reported for any annual period. Moving to Slide 9. And only in the last six months of 2023, we changed the trajectory of authID with several key noteworthy results. First, authID had record net new bookings growth.

Our team quickly built a robust sales pipeline for both short term and long-term expansion and put record breaking deals on the board. By the end of Q4, this team realized our 12-month sales bARR goal of $3 million originally targeted for June 2024 in just six months. Said differently, we surpassed our milestone in half of the projected amount of time. Second, we are actively growing customer size with record deal volume. In 2023, our team secured a number of record sized deals, including six new customers valued at over $100,000 in bARR. We also booked two customers valued at over $500,000 in bARR, authID’s very first customers ever of this size. In 2022, the tally for both of these metrics were zero. Third, we increased the record number of customer contractual commitments.

As I’ve mentioned before, we are actively measuring our revenue performance obligation, or RPO, representing the minimum fees that our customers have agreed to pay over the life of each contract. As of December 31, 2023, our total RPO grew to over $4 million, far surpassing authID’s 2022 performance by an amazing 4,800%. To ensure we onboard these new customers efficiently and speedily, our recently augmented customer success team is managing customer implementations. Once these new customers go live, we will start to see the benefits of our sales achievements reflected in top line revenue. Based on our ability to turn contracts into live customers, I’m very confident that we will start to see significant progress in revenue growth shortly here in 2024.

I would now like to turn the call over to Tom Szoke, our Chief Technology Officer, who will talk about the market trends that will drive our growth in 2024 and beyond.

Tom Szoke: Thank you, Ron. Turning to Slide 10, the market drivers. Every day, cyber attacks and ransomware, the number one fraud profit model are in the news. Last quarter, we cited the attack on several casino giants where fraudsters used a simple hack by calling into the casino help desks and impersonating key IT managers, resulting in losses of over $100 million. Just in the last few weeks, headlines have featured the multimillion-dollar ransomware attack on a US healthcare insurance payment provider and stopped vital payments to hospitals and doctors and threaten disruptions to critical patient care. Unfortunately, these companies did not know who accessed privileged user accounts, learning the hard way that assumptions of identity trust are no longer sufficient security.

And just as cyber attacks, ransomware and fraud dominate the headlines, the buzzwords deepfakes and AI also topped the news. In fact, we barely had time to enjoy the potential of generative AI and we had to start worrying about its corrupt use. Yes, now the top headlines fraud and AI have met. So the thing that’s supposed to be our next great helper is now our adversary, with AI making it easier even for those with little to no hacking talent to become fraudsters and hide behind artificial identities. Yet in many of our sales meetings, the CTOs and CISOs we speak with every day admit that they simply do not have the knowledge, expertise or systems to combat the rise in deepfakes. This increased rate and growing sophistication of fraud attacks is why digital companies across financial services, gaming, hospitality and higher education are turning to authID.

Turning to Slide 11. Adversarial generative AI increases the effectiveness and frequency of deepfakes, social engineering fraud and ransomware attacks, while lowering the bar and needed skill set for launching those attacks. Fake IDs, fake faces, fake voices are rampant with North America alone seeing over a 1,700% increase in deepfakes. Powered by AI, phishing attacks can now be generated at an industrial pace as evidenced by the over 1,200% increase in phishing e-mails and almost 1,000% increase in credential phishing attacks. A Gartner study of leading executives found that generative AI was deemed to be their second biggest corporate risk. And note that it takes an average of 204 days to detect a breach, Imagine the damage that can be done through corporate assets and personal accounts in one day, let alone 200 plus days.

This is why it is critical for the digital economy to verify users, especially privileged users, whose accounts are the most dangerous in the wrong hands and to verify them early and often. Our cyber savvy customers recognize they must identify a user, not only day zero when a user is first onboarded but every time thereafter when the user attempts to access sensitive assets. Turning to Slide 12. So what are we helping our customers defend against? Deepfakes. Deepfakes’ so sophisticated a manual human inspection cannot properly detect them. so detailed than most legacy detection methods cannot identify them. There are different types of deepfakes based on the degree of sophistication. The simplest deepfake is termed face swapping, where John swaps out Joe’s face for his.

Next is face synthesis, whereas synthesized facial image is created. And finally, deepfakes that perform face manipulation on synthesized images or videos can create even greater realism and make the fakes even more difficult to detect. So how are deepfakes used? They can be used in presentation attacks where the deepfake is presented to a camera from a high-resolution screen of another device. Second, they can be used as an injection attack where the deepfake is inserted using either hardware, software or network attack vectors. Given the complexity of deepfakes and the types of attacks they represent. authID built a layer defense solution that balances fraud detection with ease of use. Starting at the client side, our layer defense checks the endpoint device used in the transaction, performing over 50 checks, our platform confirms array of items, including device integrity, camera integrity, data integrity and code integrity.

Our technology then moves to the next defense layer with a capture and analysis of the images conducted, here visible and invisible artifact characteristics of the image are inspected and deepfakes are detected. To ensure we protect against a man in the middle network attack, the created image payload is signed and encrypted. Moving then to our back-end layer defenses. The platform analyzes the image payload to determine if a presentation attack or injection attack is being performed. If the platform determines that the integrity of the image is captured as good, meaning no deepfake, no man in th -middle attack, no presentation attack, no injection attack have been performed. The images process into a biometric template and sent to our biometric matching subsystem.

Here, an algorithm with a false acceptance rate of 0.01% the biometric template is processed against a reference template in the system. The end result is the authentication of a person using their facial biometrics and accuracy of 99.99% with a deepfake presentation and injection attack detection of greater than 99%, all analyzed and processed within a market leading 700 milliseconds or less. The digital economy can only thrive if fraud can be controlled and good customers can easily conduct commerce. Our strong layer of defenses against the ever-evolving AI generated threats coupled with a lightning quick user experience is our winning value proposition. These capabilities are driving recognition of authID as a preeminent market expert in stopping deepfakes and fraud attacks and delivering trusted biometric authentication.

Turning to Slide 13. authID pioneered the delivery of world class biometrics with precision, speed and accuracy. In 700 milliseconds or less, we delivered the fastest, frictionless biometric authentication experience performed over the web without expensive specialized hardware. Like FaceID, our tech auto launch of the camera that snaps the user selfie with no intervention and no forced user gestures. Our customers understand that current authentication methods no longer provide the security needed to detect deepfakes and fight today’s rampant account takeover schemes, knowing who is behind the device is critical to protecting their company’s most valued assets, their corporate data, their employees and their consumers. Leading digital economy players are turning to authID for best-in-class biometrics expertise and solutions to deliver absolute identity assurance for their workforce and consumer platforms, not only on day zero but every day thereafter.

Our customers should not have to compromise cybersecurity and identity assurance for a frictionless user experience. authID delivers on both. Now I will turn the call back to our CEO, Rhon Daguro.

Rhon Daguro: Thank you, Tom. In just six months, we shifted the authID story towards identity domain leadership, momentum and growth. Today, recognition of authID as a market leader offering thought leadership and delivering strong identity assurance solutions is growing. CTOs and CISOs across the digital spectrum value our identity expertise and recognize that our platform provides the critical tools they need to defeat deepfakes and the advances of adversarial AI. With fraud and ransomware lurking as ever constant and evolving threats, our customers understand they must know with a certainty who’s behind the device, not just during onboarding but also every day thereafter. The authID identity platform is a market leader, delivering the strongest identity assurance in 700 milliseconds.