Q1 2022 Ipsidy Inc Earnings Call

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Ladies and gentlemen, todays conference is scheduled to begin shortly.

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Ladies and gentlemen, thank you for standing by and welcome to the Q1 fiscal year 2022 earnings conference call and webcast.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

The question during the session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded if you would.

Require any further assistance please press <unk>.

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I would now like to turn the conference over to your speaker for today Grace to free you may begin.

Yeah.

Thank you operator, good afternoon, everyone.

With me on today's call are Tom T. Mo CEO trips Smith, our president and C. T O Stuart's tower, our CFO and Grandma Rod our general counsel.

By now you should have access to todays press release announcing our first quarter 2022 results. If you have not received this release can be found on our website at www Dot path I D don't AI under our Investor Relations section.

We are now on slide two.

Throughout this conference call, we will have we will be presenting certain non-GAAP financial information.

This information is not calculated in accordance with GAAP and maybe calculated differently from other companies similarly, titled non-GAAP information.

Quantitative reconciliations of our non-GAAP financial information to their most directly comparable GAAP financial information appear in today's press release.

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.

<unk> 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 subsequent filings, which are made available at www Dot FCC Dot Gov.

For those of you on the webcast. Please note that we have set up the presentation for you to advance the slides manually.

You can do this by hovering over the slides and tapping the double arrows that appear on the right hand side of the slides.

Tom and Steve will also provide you queues for advancing the slides.

I'd now like to introduce our CEO Tom T Mo.

Thank you Grace welcome everyone to today's call during which we'll talk about the market drivers and our progress made in the first quarter of 2022.

Great So, let's turn to slide three.

The market is moving towards off I D Y everyday a new cyber attack on the news, whether it's lapses hacking, Microsoft Octa, the solar winds breach or gaming, operator, losing $500 million in crypto currency gaining funds.

These breaches have all been largely attributable to compromised credentials and reliance on weak legacy authentication methods.

Recent estimates indicate that by 2025, the total global cost of cyber crime is expected to reach 15 trillion dollars.

Even though white house has instructed all federal agencies and contractors to adopt zero Trust.

With a specific directed to discontinue support for authentication methods.

Fail to resist fishing, including one time code or push notification.

The failure of legacy methods to deter fraud, and cyber crime is why the biometrics as a service market is projected to grow to over $16 billion by 2026.

And just last week on May 5th World Password day.

The three Big Tech Giants, Microsoft Apple and Google teamed up with the Fido Alliance, which we are a part of two announced they will create an infrastructure for expanded support.

How about common password list buying and standard.

As members up despite of alliance. We also have been working towards the same goal. We believe that this announcement significantly enhances prospects for author Ids product.

As it indicates the industry is moving to a password list future in which our biometric identity authentication could play an integral part.

Phyto. However, does have some shortcomings and this is where we see a tremendous opportunity for RFID.

I don't want dedication is still vulnerable to first and second party fraud, and an enterprise still does not know with certainty who's behind the device.

Yes, My kids can open my phone with my pin code and ordered age restricted good.

But does the alcohol delivery company really know who made that purchase of the case of cheetos.

Can I dispute that purchase in short device authentication by itself simply does not provide an indisputable audit trail of who made a purchase or who transferred funds.

Our verified platform.

This problem because we couple something you have your fido to device typically an iPhone or an Android device or a laptop with something you are youre verified self.

Together these factors deliver the highest identity assurance secured by a seamless user experience <unk>.

Eliminating passwords with fortified defense and high identity assurance.

Cloud based solution is why companies are turning to author and.

And why do we see strong momentum in our sales pipeline.

Turning to slide four.

We continue to build solid team, which brings a diversity of backgrounds and experience to help shape, our strategy product and culture. This diversity is critical to delivering ethical AI and identity products and a bias free manner.

Here, we highlight several hires and promotions made in sales and technology in the last few months.

In addition, Joe Trail and joined our board of directors, bringing to the company in valuable industry experience in technology and product management as the former Chief platform Officer clear and a former executive of NBC, Universal and Amazon Dot Com.

And as we announced last month.

All are our long time, CFO will retire and any family will succeed him as our CFO in June .

On behalf of our entire team I want to thank Stuart for your dedication and help in shaping our mission and building critical processes to support our growth we wish you only the best.

Over the course of her career and he has demonstrated acumen across all aspects of finance, particularly with software subscription and SaaS business models like ours.

And he also brings broad experience in public company and SEC reporting secondary offerings and complex accounting transaction.

Andy will be a great addition to help us advance to the next level of growth.

Turning to slide five.

Since the requirement for frictionless user experience is present in every sales conversation the technology enhancements. We made in the first quarter are helping our sales initiatives. These releases include a sleeker user interface the incorporation of additional language preferences and enhanced artificial intelligence.

Algorithm that improve both the accuracy and speed of the user experience.

Joining the Microsoft partner program with a low code deployment verified to provide biometric authentication for office 365, and Azure broadens the distribution of our verified cloud connect integration.

We also continue to build on our patent portfolio. In addition to our Triple seven U S. Patent awarded in December of 2021 in February we received U S. PTO notice of allowance of our patent to be issued tomorrow on may 10th.

This patent protects verified multifactor authentication methodology, which combines an account holders explicit consent for a transaction with identity verification and secures it with a unique digital signature critical to fighting fraud. This patented methodology creates an unchallengeable auditor.

For all parties.

Last week, we announced independent confirmation by eye data that our passive liveliness detection achieved conformance with ISO 30107 dash three level, one and level two standards for presentation attack detection or is it no ad.

With a perfect score.

Best in class Liveliness detection is critical to ensuring strong protection for penetration attacks spoofing and other social engineering attacks that have plagued others in our industry.

This is just one aspect of our commitment to continuous platform enhancements. So that we may deliver the highest levels of security and build a safer next generation digital identity landscape.

Turning to slide six.

In the first quarter of 2022, we signed agreements with the U S Medical certifying board a fintech provider of tax information to more than 50 lenders as well as the leading platform for medical professionals.

Also through our U S channel partners, we added several fintech customers, who offer consumer auto and medical financial services.

To achieve our strategic and financial objectives.

We will build on these early successes using our proven playbook to generate leads we are building a robust pipeline that focuses on those verticals most impacted by the rising threat of cyber attacks and account takeovers, including cyber security vendors health care and.

Fintech companies that provide both financial services and crypto currency.

Our marketing team is laser focused on developing campaigns in these verticals and our sales team is working diligently to turn them into qualified prospects and convert them into booked deals.

Turning to slide seven.

From launching our MVP or minimum viable product in October our team has executed extremely well to rapidly deliver gauging marketing and sales campaigns and product enhancements that speed adoption and implementation with low code integration.

As noted we have signed agreements and advanced <unk> with early prospects to drive.

Product adoption.

We believe we will see the benefit from this progress in our sales pipeline and book deals.

As a result, we expect that we will start reporting on our identity Kpis in our next quarterly results call in early August .

Those kpis include identity booked a R R.

The deferred revenue and identity annual recurring revenue, we believe that these non-GAAP measures focus on sales of our verified identity product and will give a good indication of the outstanding progress that we're making.

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

Thank you Tom.

Turning to slide eight.

My remarks will compare the quarter ended March 31 2022.

The quarter ended March 31, 2021, unless specified otherwise.

Total revenue primarily derived from legacy business for the three months ended March 31, 22 was unchanged from last year at point $6 million.

Operating expenses for the first quarter of 2022 was $5 9 million, an increase of approximately $3 $1 million, principally due to higher non cash compensation expenses.

$1.3 million as well as higher salary of technology and marketing costs we.

We anticipate that expenses for the second quarter of 2022 will be higher compared to the same period in 2021 as our expanded investment in our core technology and marketing programs began in the second half of 2021.

Net loss for the first quarter of 2022 was $5 $3 million compared with a net loss of two and a half million dollars.

First quarter 2022, adjusted EBITDA loss, which is adjusted earnings.

Earnings before interest taxes, depreciation amortization and other noncash or nonrecurring items was $2 $9 million up from an EBITDA loss of $1 $3 million.

As announced in our press release, we initiating plans to exit all legacy businesses in order to minimize cash investments on them going forward and to maintain our focus on growing our core.

<unk> biometric identity authentication revenue.

As a result, we expect our core identity revenue specifically our kpis.

Booked annual recurring revenue ball and deferred revenue will expand in 2022.

With respect to these planned exits we are working through specific plans, but we'd like to provide some information on where we currently stand.

With respect to our multi pay subsidiary in Colombia, we will incur certain costs associated with the employees and other contractual obligations multi pay will continue to service its customer base in the interim as we look to minimize cost.

Looked at possibly realized proceeds from the potential sale of multi pay assets.

We are not yet able to determine the S. So we are not yet able to estimate the cost being incurred as a result of this decision, but our current estimates all about cash costs cash costs will not exceed $250000. We have not moved forward at the central costs are right.

In the three months ended March 31 2022.

In addition, we plan to exit the South African cost plus business and we will seek a buyout of our interest we have had preliminary discussions but no definitive terms of the sale had been agreed upon at this point.

If we are successful in selling off interest we would expect a net cash inflow as a result.

Of the planned exit of this business.

Based on these preliminary discussions we have decided to write down the value of the cards plus tangible assets and have recorded a noncash impairment charge of approximately 144000 in the three months ended March 31 2022.

In the three months ended March 31, 2022, he's businesses contributed approximately <unk> 4 million of dollars of revenue.

Businesses had a net loss of approximately $57000. These amounts do not include any.

I'll quit overhead allocation, nor any amounts related to the proposed exits.

Turning to slide nine.

With respect to R 22, and a half million dollar financing it included.

$9 2 million.

Three 975% convertible notes $3.3 million sale of stock and a 10 million dollar revolving credit facility. We also secured additional profitability by having the ability to pay the interest obligation.

The 975% convertible notes with stock to avoid the cash outlay.

The middle of 2000 2023 interest annually.

<unk> <unk> 9 billion.

Furthermore, we were able to extend the maturity of our preexisting point $7 million convertible note.

February 22 to December 31, 2022.

Actually the maturity date of the $9.

2 million New convertible notes is March 31 2025.

With no principal payments until then.

As a result of this financing our cash on hand.

March 31, 2022 was $13 8 million and working capital totaled approximately $12 million there were no borrowings on the new revolving credit facility.

Looking ahead, we anticipate our cash burn rate to approximate $1 million for months.

And then improving as we add revenue from our core operations.

To reiterate our previous guidance, we estimate that haven't been sufficient cash cash.

<unk> operations through 2023, and estimate being cash flow positive as we enter 2024.

Finally.

As this will be my last quarterly earnings conference call before I retire.

I would like to thank the investors.

And for my Board members and my current and former colleagues full wonderful five and a half two years.

I wish all of you the best in the future.

Also want to welcome Amy Pam as she could take over the CFO role and I would continue to be available on a consulting basis to ensure a seamless transition.

Now ill turn it back to the operator, so we can take any questions.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

To withdraw your question the pound key.

Again, Thats star one to ask a question. Please standby, while we compile the Q&A roster.

Thank you operator Graham around them with counsel.

Well, while we're waiting for the question queue to fill up Tom perhaps I can ask you a question you mentioned the <unk>.

So by the three major tech companies, Apple, Google and Microsoft and I Wonder what you if you could expand a little more on what you believe the impact is of these three announcing that they're working towards that come and go.

Yeah Graham absolutely.

First and foremost when you've got an early stage company that is operating something highly disruptive to the marketplace. There is a number of things you need first you need a large market. There is no question that.

Syndication is a very large market opportunity you need highly differentiable and defensible IP I think with the combination.

Our success.

Positioning our product in the market and patent success portfolio that we've built.

We are both highly differentiated and highly defensible.

But the one that's always hard for early stage companies to gauge is market timing.

And it's not very often that you see Apple Google and Microsoft agree on much.

But they have agreed for a framework for password list login and identity authentication, but what does that mean that means that today when I log into my Gmail My Apple I D.

Or my.

Microsoft Office 365, I use a user name and password not for much longer.

Going to have a token on your device a fido token that it's going to allow you to seamlessly log in.

And it's always a case of when does that first domino going to fall that the market is truly going to change people have been talking about password list for so long.

Time is now it's one of the reasons that we feel very comfortable.

Streamlining and.

Just getting ready for take off on this great market opportunity, because when Apple Google and Microsoft make it that easy for you to log in every other major institution that deals with consumers is going to have to do the same thing, which begs the question that <unk> is uniquely positioned.

And to answer.

Great.

My iPhone is it truly me that is behind my iPhone, who is the person that.

Making the transaction not what is the debate that's making the transaction.

This makes truly obsolete.

Sending an SMS to a device if you already have a token on the device and know the device why would you send an SMS message to it.

You would ask the person to turn the phone to their face.

And take itself because this is the way you know who is behind the device. So this is why this news is really exciting to all of us at off.

Market timing is now.

Thanks Graham.

Let's take the next question please.

Thank you.

A reminder, ladies and gentlemen that star one to ask the question.

And Tom with are still waiting for the queue, Let me ask a follow up.

You mentioned you felt that the time is right now for us but.

Some investors might have a concern that the phase III.

Big Geyser announcing they're getting into this space why cause they just do what we do why why why would they need that they have billions of dollars why can't they just do what we do.

That's a great question and to Apple, Google and Microsoft, Let's add the fourth horsemen Amazon.

For them to agree on a standard for how to accept the token on the device. So that it can be identified is one thing for them to agree on a cloud infrastructure, where our cloud based <unk> is stored is another thing.

And while I think all can see the convenience theyre, adding to their customers by allowing them to log in with their device.

I think it is a big leap to think that that.

Amazon AWS, Apple Icloud, Microsoft Azure, and Google Cloud are all going to cooperate on the same cloud platform.

And Thats part of what gives me great confidence is.

There is a highly distributed amongst those four players cloud environment that we all.

Living so.

I am.

Very very confident that there is going to have to be a single company that becomes.

The cloud selfie.

That goes across all four of those platforms and.

And we built a highly defensible product that meets an enormous market opportunity, where thanks to Apple Google and Microsoft the market timing is now.

And grant do we not have any any questions or maybe we addressed them with the ones that we took between ourselves.

I think with that.

Okay.

That's right.

Well then in closing every headline of fraud every story, a phishing attack and even last week's announcements.

They're validates that we are on the right track and they're all tied because the right solution to support <unk>.

A world where secure password this biometric authentication delivers fortified security and strong identity insurance.

We are in the right place at the right time, we look forward to continuing to grow our sales pipeline delivering value to our customers and to reporting our.

Metrics and guidance on our very next earnings call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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