Q4 2021 Ipsidy Inc Earnings Call

March 21, 2022

Yeah.

Today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.

[music].

Okay.

Yeah.

Good morning, and thank you for standing by and welcome to the RFID fiscal year 2021 earnings conference call and webcast. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone please.

Be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Grace defeat Senior Vice President of Investor Relations. Please go ahead.

Thank you operator, good morning, everyone with me on today's call are Tom female CEO trips Smith, our president and CTO and Stuart <unk>.

CFO .

By now you should have access to today's announcement on our run rate as well as our press release announcing our 2021 resolved.

If you have not received it please.

We'll be found shortly on our website at www Dot <unk> dot 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 financial information to their 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.

Some of these risks are mentioned in our press releases today.

Others are discussed in our form 8-K, and 2021 Form 10-K , which will be made available at the SEC website.

I'd now like to introduce our CEO Tom Chemo.

Thank you Grace and welcome everyone to today's call and which we'll talk about our progress made in 2021 and the groundwork we have laid to accomplish even more in 2022 and beyond.

Since the company's rebrand to off I'd Dot AI in June of 2021 significant progress has been made on our strategic objectives, including completing an up listing to NASDAQ and an $11 $5 million investment round in August and today, we are proud to announce that we closed at 22 five.

Million dollars financing round through several needs.

We issued nine 2 million in senior secured convertible promissory notes to new and existing individual investors.

We sold $3 million of common stock at a price of $3 <unk> to a new investor.

An additional $300000 of stock was purchased at a price of 371 by senior management and board members. Finally, we have secured a $10 million credit facility with an existing major investor that ranks behind the notes I spoke of a ball.

This latest round, which comes just seven months after our successful NASDAQ up listing and equity financing rounds provides us with adequate cash to fund our working capital needs through 2023 based on our current projections.

I speak for all of our new investors are existing investors, who reinvested as well as our management team members who participated in this round that this fund raise speaks to the recognition of the strong market opportunity for secure identity authentication and is also a strong endorsement of the company's strategy technology.

And goals.

I'm going to move to slide four our vision.

With increasing growth of cyber attacks fishing and friendly fraud or vision reflects that the multi factor authentication market is moving to lower friction yet more secure authentication with greater certainty.

As we saw it in our 2021 Fintech survey, 84% of Fintech executives plan to increase investments in identity authentication over the next year.

Today authentication relies on legacy methods and insecure factors something you know a user name and password and something you have often a pin code sent to your mobile phone or possibly another thing you know a secret question that could be easily.

White from your social profile passwords, and pin codes and knowledge based authentication are done.

<unk> enterprise, the time and money and a leading cause of security breaches moving to slide five our mission.

As I said passwords and pin codes are done quite simply auto I'd will help organizations eliminate passwords and pin code.

And step up authentication to more secure biometric.

And most importantly, as the market evolves make sure that you know who is behind the device.

Moving to slide six.

On slide six you see the three depiction of the multi factor authentication market.

Past present, and the near future that we believe will be wear off.

Ultimately when the market.

Before a wining these three phases in gray blue and purple.

Let me provide a quick reminder, that there are three ways to identify authenticate a person.

First as I said before something you know typically user name and password to something you have typically a computer or mobile device and three something you are typically a biometric.

On the top line in Gray you see the way the vast majority of authentication has happened over the last 20 years.

You enter a user name and password and if a second factor is needed a six digit pin code is sent to your phone via SMS.

Or you are asked a question about your favorite Pat your mother's maiden name or Street, you want with them.

The second line is where the market is rapidly moving it's hard to go to a trade show in identity authentication and not hear the term password list.

And password list is where a fido software token is placed on your phone at a point where your identity is first proven.

And then the presence of that phone basically approves that transaction or you are logging instead of using a user name and password.

The problem here is for obvious reasons, you don't want to send an SMS to the phone you already verified it.

It just tells you what you already know what you really want to do is strengthen the authentication by knowing who is behind the device.

This is what <unk> does the world is moving to password list, where the devices known now you know who is behind the device the two together for risky or high value trends.

Actions is the way that you make sure your user is properly verified.

Moving to slide seven the problems we solve.

There are three main types of.

Fraud.

That also helps to stop.

First is third party fraud generally known in the market as identity fraud, and it's we're an individual's identity or personal details are used without their consent or knowledge to gain credit or products. It also includes manufactured identities also known as synthetic fraud with a fraudster creating.

New identity using stolen and false information.

The second is second party fraud, and that is where an individual knowingly or unknowingly gives their identity or personal information to another person.

An example of this might be friendly fraud.

Where I knowingly give my device to my daughter to make purchases on Amazon.

But I wouldn't want to give.

My 17 year old daughter, the ability to buy alcohol on a website.

Finally <unk>.

First party fraud is when a person knowingly misrepresented or identity or gives false information for financial or material gain chargeback fraud is a good example of this this is where an individual denies buying an item on a credit or debit card to get a refund from the <unk>.

Card provider.

Broad stir claims it wasn't me.

As you can see these three types of fraud cause industries billions of dollars in.

And losses and reputation.

Moving to slide eight.

I want to take a few moments to review the tremendous achievements. We have made since 2021, when I joined as CEO .

Every great company needs, a solid management team and we have one.

We've added more than a dozen leaders to our company across product management sales, where we have eight people comprising inside and sales director roles customer success marketing and engineering.

The addition of outside professional firms and engineering vendors, we will provide specific expertise that help us to scale, even faster I am also extremely pleased that over 40% of the team members added are people of color <unk> women.

Culture built on diversity creates a more desirable workplace and it strongly supports our commitment to ethical AI and our ability to provide products that deliver bias free identity certainty.

Moving to.

Slide nine.

I am extremely proud of our marketing team and how they have helped to elevate our brand and thought leadership in.

In 2021, we undertook a significant multichannel marketing effort to rebrand the company is off.

And position ourselves as a leader in the biometric authentication space, we refocused our go to market strategy shifting away from a broad complex platform sale with often cyclical revenues to a strategy that focuses on verified biometric authentication and a recurring.

Revenue subscription model.

First we did that in digital market, our digital marketing campaigns are delivering.

Out of home video and static ads across Twitter, Linkedin, Facebook and other online channels and have generated almost 11 million impressions since October .

Targeted initially or getting the <unk> name and brand in front of as many relevant targets as possible. These campaigns are quickly shifting to emphasize highly targeted lead generations of buyers of our products.

Our PR and media strategy has made great strides as well.

We built that strategy predicated on gaining coverage across top tier business financial and trade media.

Driven by an equal share of company announcements and.

Industry thought leadership, leveraging timely sector news and trends and the expertise of our management team and board of directors. We have secured a range of media placement business and trade media buy lines in prominent tech publications and broadcast interviews in the financial media.

Finally, our market presence.

We have also built an omnichannel strategy to expand our U S market presence with exhibits and speaking engagements at industry specific events, including money 2020, authenticate 2021 merchant risk Council and this week at the virtual Fintech need up we are seeing strong results and generating <unk>.

<unk>, establishing thought leadership and developing a robust pipeline.

Turning to slide 10.

We have the best in class privacy first technology in the market.

And I am very pleased with the tremendous strides our engineering and product teams have made towards our critical objectives enhancing.

Enhancing our services, making them easier to implement and securing critical protection of our best in class technology.

In the last year, our development and product teams have released a range of more convenient user interface updates designed to increase user adoption and meet the demands of today's mobile users for more convenient seamless identity authentication.

We have also deployed enhance artificial intelligence algorithms that improve the speed of experience and deliver the highest levels of assurance.

Mutual trust to businesses of all industries.

Accessibility and ease of implementation our core components of our mission to deliver best in class cloud based authentication solutions with the development of our verified cloud connect ecosystem. Our development team has performed several platform the platform integrations in order to.

Provide organizations with turnkey and low code or even no code implementations for cloud based Asia biometric authentication.

Verified cloud connect offers a flexible dropping solution that seamlessly delivers our products to technology platform customers to secure access to <unk> b to C and BD environment.

Verified cloud connect helps off I'd empower financial services organizations.

As well as enterprises are affiliated with <unk> zero and Microsoft to <unk>.

Quickly enhance their security infrastructure and provide an easier more fortified authentication experience for their customers and employees.

Finally patents and awards securing the protection of our intellectual prop.

Technology has been a key objective for us.

In December off I'd received its triple seven U S patent method.

Methodology can facilitate a diverse array of global identity transactions that secure a range of use cases, such as age restricted payments Medical records axis.

<unk> physical facility entry with the routing of identity information attributes securely and confidentially via the payment networks.

And just last month, we received further IP protection through a U S patent notice of allowance related to verify multi party multi factor authentication methodologies.

This method secures biometric authentication with an account holders consent to a transaction and provides an indisputable audit trail that can easily defeat fraud attempts.

Our expert development and product teams led by trip Smith, and Jeremiah Mason <unk>.

And our patents set <unk> apart from other identity authentication providers by ensuring strong protection from spoofing and social engineering attacks that have plagued others in our industry at the idea is committed to continuous enhancement of our platform in order to provide the highest levels of security and.

Build a safer next generation digital landscape.

So turning to slide 11.

Where are we on this journey.

So where all of these accomplishments and this phenomenal product and technology strategy brought us as I said before in October we launched our MVP a minimum viable verified product.

We brought to market, which has just highlighted we have continued to enhance and strengthen.

We are now working with early prospects to rapidly enhance product adoption.

These efforts will allow us to report upon our new Kpis metrics as discussed on our more recent investor calls, namely identity booked IRR identity deferred revenue and annual recurring revenue. We believe that these measures which focus on sales of our <unk>.

New identity products, all now branded verified will give a good indication of the progress that the company is making and the trends. We are following we continue to expect that we will start reporting on these non-GAAP metrics by the middle of 2022 by which time, we believe we will have meaningful figures.

Sure.

So if you look on the slide after the minimum viable product.

We have presented to our prospects and customers a value proposition.

We are in a stage now where we are approving those value propositions to those customers and prospects.

And in each pov or prospect deploys, our product across a test subset of users to prove that off.

<unk> the return on invested capital, we promise in our marketing and sales.

Once proven our sales team negotiate the sale for broader deployment of verified that it's typically a three year recurring subscription with a portion paid upfront and revenue to be recognized proportionally once a customer goes live.

Some of these customer sales will be reflected in our non-GAAP kpis booked annual recurring revenue that I just spoke of ore we referred to as bar.

And it's the earliest metric we can provide to demonstrate our future growth potential.

A portion of upfront payment will be captured in deferred revenue approximately 60 days following signing.

And finally, the revenue will first be recognized when the customer goes live which we expect to be three to four months after booking.

At that time, we will report a non-GAAP metric annual recurring revenue, which is an annualized revenue kpis, we use given the subscription nature of our business that we offer our customers.

These three kpis are best practices across the early stage SaaS subscription companies and we will be providing reporting on these following Q2.

So let's talk a little bit in slide 12 about some of the <unk>, we are doing right now with customers and prospects.

As previously announced we launched Hamilton Reserve Bank and Ultra credit Union with CE Nextgen in 2021, our U S. Channel partners have also added a range of enterprise customers, including a multinational nonprofit as well as various financial services and Fintech lenders offering consumer auto.

Medical lending to help reduce identity fraud in customer onboarding.

Our opex sales and customer success teams are also working through implementation of several agreements and proofs of value including.

A large e-commerce platform for merchants and consumers with a value proposition that focuses on merchant identity verification that help stop third party fraud during merchant Onboarding and as we heard at the MRC show E. Commerce merchants are facing increasing rates of account takeover.

And manual review of fraud flag transactions.

This proof of value will help these merchants defend against account takeovers and combat second and first party fraud with a customer biometric audit trail for selective fraud black transactions.

We are also working on our healthcare proof.

Proof of value with our medical certification organization with medical identity theft, costing more than $41 billion a year, the healthcare industry as a prime target for our pipeline.

This.

Proof of value by the way.

<unk> to us and recommended by a leading analyst firm Gartner was initiated to automate identity authentication for certify patient exams, specifically to defend against fraud or a physician impersonating.

And provide a low friction authentication method for records access.

The organization is currently working through a communication and rollout plan to their members. This is a great beachhead for off the idea and working with the healthcare industry with the potential to expand services across similar organizations with approximately $1 million certified physicians in the United States.

Another we have signed an agreement with tax status our software as a service technology provider that provides comprehensive IRS information on consumers to over 50, leading lenders.

This service is expected to be deployed in Q2 with automated biometric identity verification at enrollment and authentication for systems axis that meets regulatory compliance after evaluating several other vendors through proof of values. The company selected off because of the <unk>.

<unk> already of our faster low friction user experience.

Finally, one that I'm most excited about.

We're also working with a crypto technology trading platform.

To deploy point of value to address stronger identity verification at Onboarding as well as crypto currency trading transaction authentication.

<unk> will rely heavily on our recent multi factor patent to deliver stronger identity assurance throughout the crypto currency livestock lifecycle.

Author services will help this platform defend against third party fraud, and more importantly stop account takeovers as well as first party fraud, crypto currency trading making inroads in the burgeoning crypto market will be another valuable benchmark for off.

Moving to slide 13.

In addition to all these <unk> that we are working on we continue to grow our pipeline with our outstanding marketing.

To achieve the strategic and financial objectives, we need to keep building on this we can't just deliver once we have to continually deliver and grow.

And we need to build on these early successes and increase the pace at which we achieved sales with ryzen threats of cyber attacks continued identity fraud, ransomware and account takeovers organizations across all market sectors needed, new and improved way to secure assets.

We are using a proven playbook to generate leads turned them into qualified prospects and convert them into book deals.

Our sales team is building a robust pipeline across a range of verticals that are demanding higher I get the insurance, including financial service companies and Fintech software as a service technology providers and a result of our recent presence in MRC, we are engaged with new ideas.

<unk> vendors and e-commerce vendors that stretch across health care and lifestyle products.

As we said earlier in the presentation. These industries are being hammered by stolen credentials identity theft, chargeback fraud, and account takeover or verified products.

Defend against all of these fraud types. We are confident that our early success in pipeline will yield increased traction for <unk> solutions and services and drive our growth in 2022 and beyond.

Now, let me turn the call over to our CFO Soo Stoller to provide an overview of our financial results for 2021 Stu.

Yes, Thank you Tom.

All of my remarks will compare the year ended December 31, 2021 with the year ended December 31 2020.

Specified otherwise.

Turning to our financial results in early 2021 in early 2022, we achieved our goal of improving our balance sheet. Let me take you through the steps.

In June 2021, with the support of Bob then convertible note holders, we converted approximately $6 1 million of debt and accrued interest to equity.

In August 2021, we raised $11 $5 million in congestion in conjunction with our uplift to Nasdaq.

As of December .

31 2021.

<unk> outstanding indebtedness and accrued interest of $7 million with the balance now due in December 2022, after extending the due date from February 2022.

As of December 31, 2021, the company has approximately $6 million of cash not including the 22 plus million of cash availability secured today before expenses.

As a result of all of this progress we now expect to have enough cash to operate our business through the end of 2023.

We also anticipate that.

And dependent auditor's will move the going concern opinion.

This will be a substantial milestone for wassa and enhance us.

Our standing with interacting with potential customers suppliers and with readers of our financial statements.

With respect to our annual results. The company's 2021 revenue of $2 3 million was slightly favorable compared to 2020. This was mostly due to an increase in legacy revenue compared with 2020 when pandemic shutdowns.

Negatively impacted revenue.

Looking ahead.

We expect core verified biometric revenue to growth as we expand the sales pipeline and complete agreements that generate ongoing sales be signed subscription agreements as we discussed at our annual meeting we all measure ongoing sales.

<unk> booked annual and recurring revenue as well as deferred identity revenue.

Do you sort of two previously mentioned metrics.

We'll report later this year as we believe they highlight our progress by measuring the value of contract signings.

The company's operating expenses in the year ended December 31, 2021, compared to 2020 increased to 23.

<unk> 3 million from $11 2 million, principally due to higher noncash stock compensation expenses of $5 9 million.

According a reserve of approximately <unk> 6 million associated with various assets from our Colombia operations.

And increased salary costs professional fees and marketing costs.

Could we talk spans a team.

Increase in these expense categories were principally due to the ramp up tick.

Particularly in the second half of 2021 of our core rebranding product development and marketing activities.

Critical to driving future revenue.

Other non operating expenses improved in 2021 due to the.

The reduction in interest expense from the conversion of certain of the company's convertible debt into equity in June 2021, the forgiveness of the company's PPP loans, which accounting rules required to be recorded as a gain on the extinguishment of debt.

Our annual net loss for the year.

Seven to 31, 2021 was $17 7 million compared to $11 $3 million in 2020.

In 2021.

Despite $3 8 million to $8 $96 million.

We define EBITDA as adjusted earnings before interest taxes, depreciation and amortization.

And other noncash or nonrecurring items.

Defining by authority.

And as a proxy for cash flow.

The increase in adjusted EBITDA loss was due to additional investments in people marketing and technology.

Being made in the second half.

2021.

Accordingly, our cash expenses or cash burn rate.

For 2022.

Will be similar or slightly higher to the rate we saw in the second half of 2021.

As we continue to focus on investments.

It will create a sustainable and thriving business.

As we stated the latest investment round provides authorized the liquidity needed to make the necessary investments of course, we will be prudent with the cash and capital we invest.

With the goal of ensuring our return on investments.

For our shareholders and value to our customers.

I would like to thank our investors advisors board of directors and employees for their support and commitment to what we are working to achieve.

I will now turn it over to the operator.

To open the Q&A.

Thank you as a reminder to ask a question. Please.

Please press star one on your telephone to withdraw your question press the pound key.

Again, if you would like to ask a question press Star one please standby, while we compile the Q&A roster.

Thank you operator.

Tom.

<unk>.

Question is too.

Question, perhaps you'd like to expand a little bit more about the competition that we face in the marketplace and where we fit and we're also deep into the month.

Thank you Graham, yes, as I explained in slide six there are.

Huge number of companies most of them venture backed or private equity back not yet in the public markets early stage that are moving towards a password list world, where the user name and password is replaced by a fido token on your device.

And we see companies like transmit security keyless in code great companies that are providing this technology.

But the problem. We're focused on is one step beyond that how do you know who is behind that device and it's intuitively obvious that sending an SMS to the same device you just check the token was on doesn't really accomplish anything from an authentication perspective.

I also get asked an awful lot about clear clear is an amazing company in the public markets that most people are familiar with from sporting events and airports. They are a leader in physical.

Authentication when you are entering an event or entering an airport.

Where we have a solution that complements them very well is in the digital realm, where we're completely focused.

Thanks Graham.

Thank you we have a question from George Sutton with Craig Hallum. Your line is open.

Hi, Geordie, Hello, Tom Hello, Sue so.

I understand your reticence to not talk specific metrics until after Q2, but you are part of some big marketplaces.

Microsoft had a most temenos.

<unk> zero can you talk about what the Tam looks like if we just think through those marketplaces and perhaps some of your existing partners just to give us some indication of progress that you feel like Youre seeing.

A company that I admire and like to draw comparisons because the business problem. We're solving is the exact same one they solve today.

And that is a company called Twilio.

And twilio today, as the leading provider of step up authentication when you're using.

A pin code to verify a risky or high value transaction.

So I think their market cap I don't want to cite I don't have it right in front of me right now but shows the significance of just solving this business problem irrespective of whether you solve it with a selfie or a pin code.

So we believe that's one.

Well that you can look at I think also you can look at a number of software SaaS companies.

We have brought themselves to market.

Bringing a new way to do an existing process. One that always comes to mind is doctors that we used to always physically sign documents and fax them around and when they first came out with the idea that we'd do it digitally.

The market was waiting patiently, but it was clearly a very large market.

All of the SaaS markets, where a vast user base.

We'll be using a product.

Lead to a very very large tam.

<unk>.

Whether it's measured in tens or hundreds of billions of dollars and what percentage of that Tam. We think we can get we think we've got the most logical solution for the next step as password list.

Becomes the norm.

Hope I answered your question.

Well I answered your curiosity <unk> market cap is $28 9 billion.

Thanks.

Sorry, I didn't have it right in front of you guys.

Yes.

Thank you and as a reminder, if you would like to ask a question press Star one.

Have a question from Ricky Sullivan, who is a private investor Your line is open.

Hey, congrats.

Congrats hey, congrats on the financing.

So.

I am curious if you could maybe expand upon the.

The crypto.

Use case.

How kind of we kind of integrate into that.

Slow to make sure that there is a lot of fraud and help.

How big of a use case and how much fraud is there in the crypto space.

Yes.

Thanks, Ricky for the question, Yes, Crypto was one of the areas that I get most excited about not as a personal investor in crypto, but how we can help that market.

First the biometric authentication youre, making a financial transaction.

That's an extremely valuable transaction and I think we all can agree.

Storing a phrase or having a wallet that's accessible.

To determine your identity is not as secure as the peso biometric.

And so for the crypto market, we see ourselves helping in two ways first.

Helping to provide that step up authentication to make sure. The buyer of the crypto is who they are representing themselves to be both the buyer and the seller.

But then.

Our patent protection and the ability to embed biometric in a transaction record actually could pay huge benefit downstream to crypto.

There'll be no question about who made the transaction when they made the transaction because the biometric will actually be stored in the crypto transaction.

No need to remember that phrase.

Very easy for the proper use of crypto for.

<unk>.

Financial purposes.

To be have an audit trail and a very clear.

Indication of who bought it when they bought it.

And we think this will make the crypto market much more secure and much more trusted because authentication is all about trust and Thats ultimately what we provide the trust that the person that's behind the transaction is who they are saying they are.

Hope that answered your question Ricky Yeah. It does thanks and one.

One more follow up.

I would imagine that GDP would be I didn't hear you speak about it but there must be a huge opportunity for the company.

Is there anything going on in kind of in that realm.

That's another great question, I mean, we put privacy first and.

So anyone that uses the off site.

The software either on the consumer or employee side when authenticating.

We make sure it has consented.

And we do not store your personal identifiable information Europe .

Hi, <unk>.

Like many of the others in the authentication space, we store a representation of your face that without a key that our customer holds you can't unlock.

And that has many many benefits to us and to our customers first it doesn't make us a honeypot for hackers to come after <unk>.

Steel pipe.

<unk>.

But also it ensures that our customer ultimately holds literally the key.

To allowing that transaction to go through that authentication decision is made by our customer not by author I'd. We basically say, yes, we believe the face matches. The customer has the information of who's face. It is what their pi is and decide.

<unk> when and how.

To allow the transaction and go through we think this is very beneficial for GDP are because we're not keeping information about the customer.

That is private to them, we leave that to our customer to follow their own privacy and.

Compliance with GDP, our California, privacy, Illinois, and the others.

I hope that answers your follow up questions.

Yeah. It does thanks.

Thank you and I'm showing no further questions at this time I would like to turn the call back to Tom for any closing remarks.

I'd like to thank everyone, particularly those that invested in this round.

I think anyone that understands the macroeconomic environment today knows that it's not the easiest time to raise money.

But I think the fact that we were able to raise $22 $5 million is a strong statement.

That also it'd be really is skating to where the puck is going to use the overused Wayne Gretzky analogy.

But.

It would not be possible without the amazing investor base.

So many of our existing investors stepped up so many new investors joined us.

I am really really excited about the future at author.

And this now gives us the working capital cash that we need to operate through 2023 and I'm confident that.

The authentication market will move to biometric and we will become the leader in that market.

Thank you very much for your time.

Yeah.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Yes.

Okay.

Thanks.

Sure.

[music].

Okay.

Sure.

Yes.

[music].

Yes.

Okay.

Good morning.

[music].

Yes.

[music].

Okay.

[music].

Great.

[music].

Good morning, and thank you for standing by and welcome to the RFID fiscal year 2021 earnings conference call and webcast. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded I would now like turn the conference over to your speaker today Grace to freeze senior Vice President of Investor Relations. Please go ahead.

Thank you operator good morning.

Everyone with me on today's call are Tom female CEO trips Smith, our president and C T O and Stewart our CFO .

By now you should have access to today's announcement on our run rate as well as our press release announcing our 2021 results.

If you have not received it you.

He will be found shortly on our website at www dot offline E Dot AI under the Investor Relations section.

Throughout this conference call, we will always 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.

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 our press releases today.

Others are discussed in our form 8-K, and 2021 Form 10-K , which will be made available at the SEC website.

I'd now like to introduce our CEO Tom Chemo.

Okay.

Thank you Grace and welcome everyone to today's call and which we'll talk about our progress made in 2021 and the groundwork we have laid to accomplish even more in 2022 and beyond.

Since the company's rebrand to author Dot AI in June of 2021 significant progress has been made on our strategic objectives, including completing an up listing to NASDAQ and an $11 $5 million investment round in August and today, we are proud to announce that we closed at 22 five.

Million dollar financing round through several means.

We issued nine 2 million in senior secured.

Convertible promissory notes to new and existing individual investors.

We sold $3 million of common stock at a price of $3 <unk> to a new investor in.

This latest round, which comes just seven months after our successful NASDAQ up listing and equity financing rounds.

Buys us with adequate cash to fund our working capital needs through 2023 based on our current projections I know I speak for all of our new investors are existing investors, who reinvested as well as our management team members who participated in this round that this fund raise speaks to the.

Some of the strong market opportunity for secure identity authentication and is also a strong endorsement of the company's strategy technology and goals.

I'm going to move to slide four our vision.

As we saw in our 2021 Fintech survey, 84% of Fintech executives plan to increase investments in identity authentication over the next year.

De authentication relies on legacy methods and insecure factors something you know a user name and password and something you have often a pin code sent to your mobile phone or possibly another thing you know a secret question that can be easily slide from your social profile.

Words, and pin code and knowledge based authentication are done.

They cost enterprise with time and money and our leading cause of security breaches moving to slide five our mission.

As I said passwords and pin codes are done quite simply off the idea will help organizations eliminate passwords and pin code.

And step up authentication to more secure biometric.

And most importantly, as the market evolves make sure that you know who is behind the device.

Moving to slide six.

On slide six you see the three depiction of the multi factor authentication market.

Past present, and the near future that we believe will be where at.

Ultimately when the market.

Before a wining these three phases in gray blue and purple.

Let me provide a quick reminder, that there are three ways to identify authenticate a person.

First as I said before something you know typically user name and password to something you have typically a computer or mobile device and three something you are typically a biometric.

On the top line in Gray you see the way the vast majority of authentication has happened over the last 20 years.

Enter a user name and password and if a second factor is needed a six digit pin code is sent to your phone via SMS.

Or you are asked a question about your favorite pet your mother's maiden name or a street you once we are done.

The second line is where the market is rapidly moving it's hard to go to a trade show in identity authentication and not hear the term password list.

And password list is where a fido software token is placed on your phone at a point where your identity is first proven.

And then the presence of that phone basically approves that transaction or your logging instead of using a user name and password.

The problem here is for obvious reasons, you don't want to send an SMS to the phone you already verified.

It just tells you what you already know.

What you really want to do is strengthen the authentication by knowing who is behind the device.

This is what <unk> does the world is moving to password list, where the devices known now you know who is behind the device the two together for risky or high value trends.

<unk> is the way that you make sure your user is properly verified.

Moving to slide seven.

Problems, we solve.

There are three main types of.

Fraud that also helps to stop.

First is third party fraud generally known in the market as identity fraud, and it's we're an individual's identity or personal details are used without their consent or knowledge gained credit or products. It also includes manufactured identities also known as synthetic fraud with a fraudster.

<unk>, a new identity using stolen and false information.

The second is second party fraud, and that is where an individual knowingly or unknowingly gives their identity or personal information to another person.

An example of this might be friendly fraud.

Where I knowingly give my device to my daughter to make purchases on Amazon.

But I wouldn't want to give my 17 year old daughter, the ability to buy alcohol on our website.

Finally <unk>.

First party fraud is when a person knowingly misrepresent their identity or gives false information for financial or material gain chargeback fraud is a good example of this this is where an individual denies buying an item on a credit or debit card to get a refund from the <unk>.

Card provider.

<unk> your claims it wasn't me.

As you can see these three types of fraud cause industry billions of dollars in.

And losses and reputation.

Okay.

Yeah.

Moving to slide eight.

I want to take a few moments to review the tremendous achievements. We have made since 2021, when I joined as CEO .

Every great company needs, a solid management team and we have one.

We've added more than a dozen leaders to our company across product management sales, where we have eight people comprising inside and sales director roles customer success marketing and engineering the.

The addition of outside professional firms and engineering vendors will provide specific expertise that help us to scale, even faster I am also extremely pleased that over 40% of the team members added are people of color <unk> women a culture built on diversity creates a more desirable.

And it's strongly supports our commitment to ethical AI and our ability to provide products that deliver bias free identity certainty.

Moving to slide nine.

I am extremely proud of our marketing team and how they have helped to elevate our brand and thought leadership.

In 2021, we undertook a significant multichannel marketing effort to rebrand the company is off.

Revenue subscription model.

First we did that in digital market, our digital marketing campaigns are delivering.

Out of home video and static ads across Twitter, Linkedin, Facebook and other online channels and have generated almost 11 million impressions since October .

Targeted initially of getting them off the <unk> name and brand in front of as many relevant targets as possible. These campaigns are quickly shifting to emphasize highly targeted lead generations of buyers of our products.

Our PR and media strategy has made great strides as well.

We built that strategy predicated on gaining coverage across top tier business financial and trade media.

Driven by an equal share of company announcements and.

Finally, our market presence.

We have also built an omni channel strategy to expand our U S market presence with exhibits and speaking engagements at industry specific events, including money 2020, authenticate 2021 merchant risk Council and this week at the virtual Fintech meet up we are seeing strong results and generating <unk>.

<unk>, establishing thought leadership and developing a robust pipeline.

Turning to slide 10.

We have the best in class privacy first technology in the market.

And I'm very pleased with the tremendous strides our engineering and product teams have made towards a critical objective.

Enhancing our services, making them easier to implement and securing critical protection of our best in class technology.

And the last year, our development and product teams have released a range of more convenient user interface updates designed to increase user adoption and meet the demands of today's mobile users for more convenient seamless identity authentication.

We have also deployed enhance artificial intelligence algorithms that improve the speed of experience and deliver the highest levels of assurance and mutual trust to businesses of all industries.

Provide organizations with turnkey and low code or even no code implementations for cloud based visual biometric authentication.

Verified cloud connect offers a flexible dropping solution that seamlessly delivers our product technology platform customers to secure access to b to b b to C and BD environment.

Verified cloud connect helps off I'd empower financial services organizations.

And as well as enterprises affiliated with at zero and Microsoft to quickly enhance their security infrastructure and provide an easier more fortified authentication experience for their customers and employees.

Finally patents and awards securing the protection of our intellectual property and technology has been a key objective for us.

In December off.

Received its triple seven U S patents.

Or methodology can facilitate a diverse array of global identity transactions that secure a range of use cases, such as age restricted payments Medical records axis.

And physical facility entry with the routing of identity information attributes securely and confidentially via the payment networks.

And just last month, we received further IP protection through a U S patent notice of allowance related to verify multi party multi factor.

Dedication methodology.

This method secures biometric authentication with an account holders consent to a transaction and provides an indisputable audit trail that can easily defeat fraud attempts.

Our expert development and product teams led by trip Smith, and Jeremiah Mason <unk>.

And our patent set <unk> apart from other identity authentication providers by ensuring strong protection from spoofing and social engineering attacks that have plagued others in our industry at the idea is committed to continuous enhancement of our platform in order to provide the highest levels of security and.

Build a safer next generation digital landscape.

So turning to slide 11.

Where are we on this journey.

So where all of these accomplishments and this phenomenal product and technology strategy brought us as I have said before in October we launched our MVP a minimum viable verified product.

We brought to market, which has just highlighted we have continued to enhance and strengthen.

We are now working with early prospects to rapidly enhance product adoption.

These efforts will allow us to report upon our new Kpis metrics as discussed on our more recent investor calls, namely identity booked RR identity deferred revenue gain.

Daniel D annual recurring revenue, we believe that these measures, which focus on sales of our new identity products. All now branded verified will give a good indication of the progress that the company is making and the trends we are fallen.

We continue to expect that we will start reporting on these non-GAAP metrics by the middle of 2022 by which time, we believe we will have meaningful figures to share.

So if you look on the slide after the minimum viable product, we have presented to our prospects and customers a value proposition.

We are in the stage now where are we approving those value propositions to those customers and prospects and in each pov or prospect deploys our product across a test subset of users to prove that <unk>.

Provide the return on invested capital, we promise in our marketing and sales.

The sum of these customer sales will be reflected in our non-GAAP kpis booked annual recurring revenue that I just spoke of ore we referred to as bar.

And it's the earliest metric we can provide to demonstrate our future growth potential.

The portion of upfront payment will be captured in deferred revenue approximately 60 days following signing.

And finally, the revenue will first be recognized when the customer goes live which we expect to be three to four months after booking.

At that time, we will report a non-GAAP metric annual recurring revenue, which is an annualized revenue kpis, we use given the subscription nature of our business that we offer our customers.

These three kpis are best practices across the early stage SaaS subscription companies.

And we will be providing reporting on these following Q2.

So, let's talk a little bit in slide 12.

About some of the <unk>, we are doing right now with customers and prospects.

As previously announced we launched Hamilton Reserve Bank, an ultra credit Union with Cu Nextgen in 2021, our U S. Channel partners have also added a range of enterprise customers, including a multinational nonprofit as well as various financial services and Fintech lenders offering consumer auto.

Our medical lending to help reduce identity fraud in customer onboarding.

Our R&D sales and customer success teams are also working through implementation of several agreements and proofs of value including.

A large e-commerce platform for merchants and consumers with a value proposition that focuses on merchant identity verification that helps stop third party fraud during merchant Onboarding and as we heard at the MRC show E. Commerce merchants are facing increasing rates of account takeover.

And manual review of fraud flag transactions.

This proof of value will help these merchants defend against account takeovers and combat second and first party fraud with a customer biometric audit trail for selective trough black transactions.

Okay.

We are also working on our healthcare proof.

Proof of value with our medical certification organization with medical identity theft, costing more than $41 billion a year, the healthcare industry as a prime target for our pipeline.

This.

Proof of value by the way.

And provide a low friction authentication method for records access.

The organization is currently working through a communication and rollout plan to their members. This is a great beachhead for off the idea and working with the health care industry with the potential to expand services across similar organizations with approximately $1 million certified physicians in the United States.

Another we have signed an agreement with tax status our software as a service technology provider that provides comprehensive IRS information on consumers to over 50, leading lenders.

This service is expected to be deployed in Q2 with automated biometric identity verification and enrollment and authentication for systems access that meets regulatory compliance after evaluating several other vendors through proof of values. The company selected off because of the <unk>.

<unk> already of our faster low friction user experience.

Finally, one that I'm most excited about.

We're also working with a crypto technology trading platform.

To deploy point of value to address stronger identity verification at Onboarding as well as crypto currency trading transaction authentication.

<unk> will rely heavily on our recent multi factor patent to deliver stronger identity assurance throughout the crypto currency livestock lifecycle.

Moving to slide 13.

In addition to all these <unk> that we are working on we continue to grow our pipeline with our outstanding marketing.

To achieve the strategic and financial objectives, we need to keep building on this we can't just deliver once we have to continually deliver and grow.

And we need to build on these early successes and increase the pace at which we achieved sales with rising threat of cyber attacks continued identity fraud, ransomware and account takeovers organizations across all market sectors needed, new and improved way to secure assets.

We are using a proven playbook to generate leads and turn them into qualified prospects and convert them into book deal.

Vendors and e-commerce vendors that stretch across health care and lifestyle products.

As we said earlier in the presentation. These industries are being hammered by stolen credentials identity theft, chargeback fraud, and account takeover or verified products.

Defend against all of these fraud types. We are confident that our early success in pipeline will yield increased traction for <unk> solutions and services and drive our growth in 2022 and beyond.

Now, let me turn the call over to our CFO Soo Stoller to provide an overview of our financial results for 2021 Stu.

Yes, Thank you Tom.

All of my remarks will compare the year ended December 31, 2021 with the year ended December 31, 2020 unless specified otherwise.

Turning to our financial results in early 2021 in early 2022, we achieved our goal of improving our balance sheet. Let me take you through the steps.

<unk> 2021 with the support of Bob then convertible note holders, we converted approximately $6 1 million of debt and accrued interest to equity.

In August 2021, we raised $11 $5 million in congestion in conjunction with our uplift to Nasdaq.

As of December .

31, 2021, we have outstanding indebtedness and accrued interest of <unk> 7 million.

With the balance now due in December 2022, after extending the due date from February 2022.

As of December 31, 2021, the company has approximately $6 million of cash.

Not including the 22 plus million of cash availability secured today before expenses.

As a result of all of this progress we now expect to have enough cash to operate our business through the end of 2023.

Also anticipate that.

<unk> dependent auditors, who moved the going concern opinion.

This will be a substantial milestone for <unk> D and enhance us.

Our standing with interacting with potential customers suppliers and with readers about financial statements.

With respect to our annual results. The company's 2021 revenue of $2 3 million was slightly favorable compared to 2020.

This was mostly due to an increase in legacy revenue compared with 2021.

When pandemic shutdowns negatively impacted revenue.

Looking ahead.

We expect our core verified biometric revenue to growth.

As we expand the sales pipeline and complete agreements generate ongoing sales to be signed subscription agreements.

We discussed at our annual meeting, we all measure ongoing sales of ball.

Annual recurring revenue as well as deferred identity revenue.

Do you sort of two previously mentioned metrics. We will report later this year as we believe they highlight our progress by measuring the value of contract signings.

The company's operating expenses in the year ended December 31, 2021, compared to 2020 increased to 23.

<unk> 3 million from $11 2 million, principally due to higher noncash stock compensation expenses of $5 9 million.

According a reserve of approximately <unk> 6 million associated with various assets from our Colombia operations.

And increased salary costs professional fees and marketing cost attributed to our expanded team. The increase in these expense categories were principally due to the ramp up.

Particularly in the second half of 2021.

Our core rebranding product development and marketing activities that are critical to driving future revenue.

Other non operating expenses improved in 2021 due to.

Our annual net loss for the year.

<unk> 31, 2021 was $17 7 million compared to $11 $3 million in 2020.

In 2020.

Despite $3 8 million to $8 $96 million.

We define EBITDA as adjusted earnings before interest taxes, depreciation and amortization.

And other noncash or nonrecurring items.

Defining by authority.

And as a proxy for cash flow.

The increase in adjusted EBITDA loss.

Due to additional investments in people marketing and technology.

Company made in the second half.

2021.

Accordingly, our cash expenses or cash burn rate.

For 2022.

Will it be similar or slightly higher to the rate we saw in the second half of 2021.

We continue to focus on investments.

It will create a sustainable and thriving business.

As we stated the latest investment round provides authority.

Quiddity needed to make the necessary investments.

Of course, we will be prudent with the cash and capital we invest.

With the goal of ensuring a return on investments.

Our shareholders and value to our customers.

I would like to thank our investors advisors board of directors and employees for their support and commitment to what we are working to achieve.

I will now turn it over to the operator.

To open the Q&A.

Thank you as a reminder to ask a question. Please.

Please press star one on your telephone to withdraw.

Your question press the pound key.

Again, if you would like to ask a question press star one.

Standby, while we compile the Q&A roster.

Thank you operator.

While we're waiting for.

Question is to post.

Question, perhaps you'd like to expand a little bit more about the competition that we face in the marketplace, and where we fit and where <unk> been in a month right.

Thank you Graham, yes, as I explained in slide six there are.

Huge number of companies most of them venture backed or private equity backed not yet in the public markets early stage that are moving towards a password list world, where the user name and password is replaced by a fido token on your device.

And we see companies like transmit security keyless in code great companies that are providing this technology.

I also get asked an awful lot about clear clear is an amazing company in the public markets that most people are familiar with from sporting events and airports. They are a leader in physical.

Authentication when you are entering an event or entering an airport.

Where we have a solution that complements them very well is in the digital realm, where we're completely focused.

Thanks Graham.

Okay.

Thank you we have a question from George Sutton with Craig Hallum. Your line is open.

Hello.

Hello, Tom Hello, Sue.

So I understand your reticence to not talk specific metrics until after Q2, but you are part of some big marketplaces.

Croissant, most temenos and <unk> zero can you talk about what's the Tam looks like if we just think through those marketplaces and perhaps some of your existing partners just to give us some indication of progress that you feel like you are seeing.

A company that I admire and like to draw comparisons because the business problem. We're solving is the exact same one they solve today.

And that is a company called Twilio.

And twilio today as the leading provider.

Step up authentication when you're using.

A pin code to verify a risky or high value transaction.

So I think their market cap I don't want to cite it I don't have it right in front of me right now but shows the significance of just solving this business problem irrespective of whether you solve it with a selfie or a pin code.

So we believe that's one parallels that you can look at I think also you can look at a number of software SaaS companies.

<unk> brought themselves to market.

The market was waiting patiently, but it was clearly a very large market.

All of the SaaS markets, where a vast user base.

We'll be using a product.

Lead to a very very large tam.

<unk>.

Whether it's measured in tens or hundreds of billions of dollars and what percentage of that Tam. We think we can get we think we've got the most logical solution for the next step as password list.

Becomes the norm.

Hope I answered your question.

Well I answered your curiosity <unk> market cap is $28 9 billion.

Thanks.

Sorry, I didn't have it right in front of you guys.

Yes.

Thank you and as a reminder, if you would like to ask a question press Star one.

A question from Ricky Sullivan, who is a private investor Your line is open.

Hey, congrats.

Congrats hey, congrats on the financing.

So.

I'm curious if you could maybe expand upon the.

The crypto.

Use case.

How kind of we kind of integrate into that.

Hello to make sure that there is a lot of fraud and how.

How big of a use case and how much fraud is there in the crypto space.

Thanks, Ricky for the question, Yes, Crypto was one of the areas that I get most excited about not as a personal investor in crypto, but how we can help that market.

First the biometric authentication youre, making a financial transaction.

That's an extremely valuable transaction and I think we all can agree that storing a phrase or having a wallet that.

Accessible.

To determine your identity is not as secure as a facial biometric.

And so but the crypto market, we see ourselves helping in two ways first.

Helping to provide that step up authentication to make sure. The buyer of the crypto is who they are representing themselves to be both the buyer and the seller.

But then.

Our patent protection and the ability to embed biometric in a transaction record actually could pay huge benefit downstream the crypto because there'll be no question about who made the transaction when they made the transaction because the biometric will actually be stored in the crypto transaction.

So no need to remember that phrase.

Very easy for the proper use of crypto for.

Financial purposes.

To be have an audit trail and a very clear.

Indication of who bought it when they bought it.

We think this will make the crypto market much more secure and much more trusted because authentication is all about trust and Thats ultimately what we provide the trust that the person that's behind the transaction is who they are saying they are.

Hope that answered your question Ricky.

Thanks.

One more follow up.

I would imagine that GDP would be I didn't hear you speak about it but there must be a huge opportunity for the company.

Is there anything going on in kind of in that realm.

That's another great question I mean, we put privacy first.

And so anyone that uses the off site.

The software either on the consumer or employee side when authenticating.

We make sure it has consented.

And we do not store your personal identifiable information your pie. Unlike many of the others in the authentication space, we store a representation of your face that without a key that our customer holds you can't unlock.

And that has many many benefits to us and to our customers first it doesn't make us a honeypot for hackers to come after <unk>.

Steel pipe.

<unk>.

But also it ensures that our customer ultimately holds literally the key.

To allowing that transaction to go through that authentication decision is made by our customer not by Arthur <unk>.

We basically say, yes, we believe the face matches the customer has the information of who's face. It is what they are.

Is and decide when and how.

To allow the transaction to go through we think this is very beneficial for GDP are because we're not keeping information about the customer.

That is private to them, we leave that to our customer to follow their own privacy and.

Compliance with GDP, our California, privacy, Illinois, and the others.

I hope that answers your follow up questions.

Yeah. It does thanks.

Thank you and I'm showing no further questions at this time I would like to turn the call back to Tom for any closing remarks.

I'd like to thank everyone, particularly those that invested in this round.

I think anyone that understands the macroeconomic environment today knows that it's not the easiest time to raise money.

But I think the fact that we were able to raise 22 and a half million dollars is a strong statement.

That <unk> really is skating to where the puck is going to use the overused Wayne Gretzky analogy.

But.

It would not be possible without an amazing investor base.

So many of our existing investor stepped up so many new investors joined us.

I am really really excited about the future at author.

And this now gives us the working capital cash that we need to operate through 2023 and I'm confident that.

The authentication market will move to biometric and we will become the leader in that market.

Thank you very much for your time.

Yeah.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

Q4 2021 Ipsidy Inc Earnings Call

Request a DemoDemo

AUID

authID

Earnings