Q2 2024 authID Inc Earnings Call - Q&A
As a reminder, this conference is being recorded.
Speaker Change: With me on today's call are our CEO , Rhon Daguro, and our CFO , Ed Sellitto. By now, you should have access to today's press release announcing our second quarter 2024 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.
Speaker Change: This information is not calculated in accordance with GAP and may be calculated differently from other companies similarly titled non-GAP information.
Quantitative reconciliation 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 10-10 and other filings which are made available at www.sec.gov.
Speaker Change: I'd now like to introduce our CEO , Rhon Daguro.
Rhon Daguro: Thank you, Graham, and thank you. Thank you, everyone, for joining us this afternoon.
Rhon Daguro: Our value proposition continues to resonate strongly in the market as we help our customers defeat identity fraud and malicious AI generated cyber attacks. Let me spend a few moments on one of the attacks our customers are concerned about.
[inaudible]
Speaker Change: Ed Sheer, Ed Sheer,
On the screen, you will see an AI tool that generates deepfake voices, which is readily available on the internet. These tools are used to attack call centers, customer support, and help desks to conduct an account takeover. Using tools like the one you see here, any fraudster can type in a few words, train the voice model from any public YouTube video, and in seconds, they have a synthetic voice saying exactly what the fraudster wants. Let's hear what our fraudster has to say.
Speaker Change: Hey John , it's Dwayne. I got locked out of my account again. Can you help me reset my account please? I report to Sarah Robertson and my employee number is 4613246 and my email address is therockatnewbank.com. Thanks for your help, pal.
Speaker Change: [inaudible]
Speaker Change: Ed Sheeran, Unknown Executive, Unknown Executive, Unknown Executive, Unknown Executive
Ed Sheer, Ed Sheer,
Speaker Change: As you can see, the fraudster exploited the ROC to have his account reset, just like any fraudster can exploit any consumer or any employee or anyone on this call to say exactly what they want. It's not difficult to see how this deepfake voice could easily fool any $20-an-hour call center agent who's being asked to reset a password.
Speaker Change: Now imagine what kind of fraud can happen when a fraudster combines a deepfake voice with a deepfake video.
Speaker Change: Deepfake tools like you see on the screen allow fraudsters to take any static image or video from the Internet to generate a realistic deepfake.
Speaker Change: They need moats, like a natural.
Speaker Change: real human being with natural facial movements, natural body movements, natural eye movements, in combination with mouth movements to match words prompted by the fraudster. Let's see what the deepfake fraudster looks like with voice and video together.
Speaker Change: Hey John , it's Dwayne. I got locked out of my account again. Can you help me reset my account please? I report to Sarah Robertson and my employee number is 4613246 and my email address is therockatnewbank.com. Thanks for your help, pal.
Speaker Change: As you can see, this video is pretty convincing, if The Rock wasn't famous. It's only going to get even more convincing. I myself have seen improvements in these tools over the last 30 days.
Speaker Change: No doubt in my mind that this will drastically be improved in the next 90 days with how fast AI can learn.
Speaker Change: which doesn't leave companies much time to be prepared. In fact, a fraud attack using a deep fake of a company's CFO was successful earlier this year in fooling a financial analyst to move $25 million out of the organization.
Speaker Change: Every day we hear in our conversations with CISOs from some of the largest banks, hotels, and tech providers out there that this is what keeps them up at night, simply because they don't have the technology to stop these kind of attacks.
Speaker Change: Because authID can seamlessly detect and protect organizations against deepfakes, the demand for authID technology is growing.
Speaker Change: So let me summarize the pillars of our momentum before I go into them in more detail.
Speaker Change: The first pillar is our innovative technology.
Speaker Change: Our biometric authentication technology was already highly differentiated in speed, but our team has worked tirelessly on delivering the highest level of accuracy on our facial biometric matching, as well as the highest level of privacy the industry has ever seen.
Speaker Change: The second pillar is our sales reach, which has expanded exponentially through our partners, which we began building in Q4 of 2023.
Speaker Change: Through the second quarter of 2024, we have signed six new committed partners that have strong sales teams who are selling to their already robust customer portfolios.
Speaker Change: What's important to note here is that our partners can partner with anyone, but through their rigorous evaluation process, they have selected to partner with authID because of the unique value our technology brings to the market compared to anyone else.
Speaker Change: The third pillar is our market demand, which continues to rise. We continue to build great pipeline at a rapid pace to attract and sign customers.
Speaker Change: A number of our FAT100 customers quickly helped us prove out our technology and value proposition. And on a daily basis, authID continues to advance our sales cycles in the FAT100, the strategic enterprise opportunities, with some of the largest financial services, hospitality, gaming, and gig economy providers.
Speaker Change: And our fourth pillar of momentum can be seen in our performance results, which continue to improve both sequentially and on a year-over-year basis as we continue to focus all our energy on helping our customers become successful.
Speaker Change: I will go into more detail across these pillars now.
Speaker Change: Every day, in conversations with our enterprise prospects and customers, we are reminded that speed and user experience, accuracy, and data protection and privacy are paramount.
Speaker Change: Over the last quarter, our highly talented engineering team has enhanced our platform with leaps in innovation that address these requirements to eliminate authentication fraud for our customers. Let me highlight the three technology advantages that are driving the excitement with the customers and the partners who are filling up our sales pipeline.
Speaker Change: The First to Speed.
Speaker Change: Announced over a year ago, with our less than 700 millisecond processing time, our competitors have tried to close the gap but are still five to ten times slower. Why is this important? In order to participate in payments use cases,
Speaker Change: You have to get close to 400 milliseconds and below, and we definitely have the capability to get within that range. Our speed has opened up a variety of use cases for authID where our customers cannot afford to provide friction or long wait times to their customers.
Speaker Change: What makes this result even more incredible is that during this sub-second time, authID seamlessly conducts an extensive series of fraud checks.
Speaker Change: Detects presentation and injection attacks for both facial and document images, detects the presence of deep fakes, and performs highly accurate facial biometric match.
Speaker Change: The second is accuracy.
Speaker Change: So very excited about this. Today, our engineering team is rolling out a world-leading biometric matching accuracy of one in a billion.
Speaker Change: A phenomenal increase over our previous accuracy rate that matched the NIST, the National Institute of Standards benchmark rate of 1 in 100,000.
Speaker Change: This achievement is not simply a 100% increase.
Speaker Change: It's not a thousand percent increase.
Speaker Change: It has completely separated authenticity in the market with an increase of 10,000% in accuracy improvement. Said another way, our game-changing accuracy of one in a billion means that if there were 8 billion people in the world and we digitized all of them, we would only get it wrong eight times.
Speaker Change: This level of accuracy has been validated by the independent testing organization CSIRO, which has a formal set of standard criteria in their evaluation, and their testing results have shown that the accuracy can even exceed 1 in a billion, up to 1 in 34 billion for higher resolution facial images.
Speaker Change: This means that any head-to-head accuracy comparison to any biometric identity vendor on the market, authID will be leaps and bounds more accurate.
Speaker Change: The third is privacy.
Speaker Change: authID is delivering superior privacy and data protection in biometrics.
Speaker Change: The fastest speeds and the highest levels of accuracy are crucial to customers.
Speaker Change: Even more crucial is ensuring the privacy and the protection of their users biometric data to meet current compliance and future compliance regulations, as well as to eliminate any liability associated with storing biometrics.
Speaker Change: As you'd expect, organizations see the value of using biometrics, but they are cautious.
Speaker Change: Cost is to adopt because of all the privacy concerns and the jumble of privacy regulations that are developing at the local, state, and national levels.
Speaker Change: So, our challenge is to provide our customers with all the benefits of using biometrics, but without the increased liability or even the compliance confusion.
AuthID: To meet this demand, authID has been working maniacally on a solution and is now offering a biometric privacy option that eliminates the need to store biometric data anywhere.
Speaker Change: This revolutionized solution allows facial images to be converted into a public-private key pair where only the public keys need to be stored, transforming biometric authentication into a cryptographic transaction with no biometric data associated to it.
Speaker Change: What further differentiates authID from the others is that the private key is never stored and instead is generated each time a transaction is performed using the live facial image of the person.
Speaker Change: Before I start the demo, what you're going to see is a facial biometric authentication, which is going to use a private key and a public key to make a match.
Speaker Change: So we are not using biometric templates or any form of a biometric recall from storage to make the match. Let's see it in action.
Speaker Change: In the next episode, we'll see you in the next episode.
Speaker Change: i
Speaker Change: User will present their face.
Speaker Change: I'll be back with you in the next video.
Speaker Change: [inaudible]
Speaker Change: And there you go.
Speaker Change: You can see how fast that was.
Speaker Change: Basically, on the screen, it recorded 360 milliseconds, which is actually faster than the 700 milliseconds that we've been touting.
Speaker Change: But more importantly, on the screen, you can see the private key on the left, the public key on the right, which is being used to run the match.
Speaker Change: And once the match is completed, both the private key and the facial image stored are completely deleted. No biometric is ever stored, and the consumer is never affected and the experience remains absolutely seamless.
Speaker Change: Our new biometric privacy option is a market game changer because no other biometric authentication provider has this ability. This has been absolutely been helping us advance our opportunities with many large enterprise prospects.
Speaker Change: Moving on.
Speaker Change: Thank you for watching, and I'll see you in the next video.
Speaker Change: Building a strong channel ecosystem is a key pillar of our success.
Speaker Change: Our channel partners, including Conclusive, Cintro, IBMWorks, Tysoft, and just announced today, DataVisor, are all the force multipliers that deliver more feet on the street and quicker access to the customers and verticals they already serve.
Speaker Change: Because of that quicker access, we refer to their customers as the Faster 100.
Speaker Change: Our partners are excited about the added value and market differentiation derived from our combined product set to fight fraud. More importantly, they embrace the opportunity to grow their revenue, and they have had an immediate effect in amping up our sales and our sales pipeline.
Speaker Change: We have already signed agreements via our partners in Q2 and are in the process of going live with two customers through the channel, which include a large North American gaming customer and a cannabis e-commerce platform.
Speaker Change: On the direct sale side.
Speaker Change: authID has advanced opportunities across
Speaker Change: Those being large enterprise customers with deal sizes that generate higher revenue and longer-term enterprise value for authID.
Speaker Change: Every day we demonstrate our value technology to large hotels, gaming platforms, financial institutions, HR providers, telcos, identity access management platforms, and gig economy platforms.
Speaker Change: The main common denominator between large-scale enterprise CISOs is the fear of the rapid pace of malicious AI-driven attacks and scams targeting both their customer-facing and workforce systems, like I shared in the opening demo.
Speaker Change: AI-generated IDs and deepfakes are attacking the large enterprises who have the most to lose, which is driving the urgency.
Speaker Change: Moving on to revenue.
Speaker Change: Our fourth pillar of momentum.
Speaker Change: is our strong metrics, including our sequential and year-over-year growth in revenue.
Speaker Change: In Q1 2024, our revenue of 0.16 million approached the revenue in all of 2023.
Speaker Change: In Q2, we grew revenue by 75% over Q1 to $0.28 million by launching the services with four new customers.
Ed Sellitto: Given our current RPO of over $4 million, we expect to continue to see quarter-over-quarter and year-over-year revenue growth for the balance of 2024. Ed Sellitto will provide additional details during his part of the presentation.
Ed Sellitto: Moving to pipeline.
Ed Sellitto: Our robust sales pipeline growth also reflects continued demand for authID's biometric solutions.
Ed Sellitto: In Q2, our direct sales team and channel partners expanded our sales pipeline to its current value of over $25 million.
Ed Sellitto: A 20% increase over the Q1 pipeline of $21 million. Our current pipeline includes 71 opportunities valued at $100k+, and 12 deals valued at $500k+.
Speaker Change: In the next episode, we'll see you in the next episode!
Ed Sellitto: Our continued growth in book contracts.
Ed Sellitto: Also further confirms strong market demand for authID's biometric authentication.
Ed Sellitto: In the second quarter, our sales team secured contracts valued at over $630,000 in gross bar, a strong increase over Q1 and approximately triple growth over the Q2 gross bar a year ago.
Ed Sellitto: Our Q2 BAR included both direct and channeled partner signed deals representing gaming, cannabis, compliance, gift cards, and universal basic income.
Ed Sellitto: While both our channel partners and direct sales teams will continue to identify new prospects and add deals to our pipeline, at this point in the year, we are estimating that we could achieve a 33% close ratio on the $25 million pipeline to attain our $9 million bar target for 2024.
Ed Sellitto: Before I turn it over to Ed.
Ed Sellitto: I'm excited that we continue to build strong market momentum. I'm confident that authID is on the right path and that we will deliver upon our mission to eliminate authentication fraud and realize our near-term and long-term goals.
Ed Sellitto: Thank you for your time. I will now turn the call over to Ed Sellitto to present our Q2 financial results.
Ed Sellitto: Thank you, Ron.
Ed Sellitto: As you highlighted, we continue to expand authID's market reach and advance our growth in Q2 of 2024. Our sales teams expanded our channel partner network by signing new reseller and OEM agreements with fintech and risk management platforms, and also increased our book contracts by signing new enterprise customers.
Ed Sellitto: Our engineering and customer success teams work to enhance our biometric platform and roll out service to our customer base.
Speaker Change: I'll now present our Q2 2024 financial results.
Speaker Change: Starting with our GAAP measures , the following highlights compare our gap results for the quarter and six-month period ended June 30, 2024, with the quarter and six-month period ended June 30, 2023, unless specified otherwise.
Ed Sellitto: Total revenue for Q2 2024 was $0.28 million compared with $0.04 million a year ago.
Speaker Change: For the six months ended June 30th, 2024, total revenue was $0.44 million compared with $0.07 million a year ago.
Ed Sellitto: Operating expenses for Q2 2024 were $3.6 million compared with $2.8 million a year ago. For the six-month period in 2024, operating expenses were $6.9 million compared with $3.8 million for the same period last year.
Ed Sellitto: The 2024 increase is primarily due to a 2023 one-time event representing a reversal of approximately $3.4 million in stock-based compensation resulting from Q1 2023 terminations.
Ed Sellitto: Net loss from continuing operations for Q2 was $3.3 million, of which non-cash charges were $0.8 million, compared with a net loss of $10.9 million a year ago, of which non-cash charges were $9.2 million.
Ed Sellitto: For the six-month period in 2024, net loss was $6.3 million, including $1.6 million in non-cash and one-time severance charges.
Ed Sellitto: This compares to a net loss of $12.7 million for the same period last year, which included $8.8 million in non-cash and one-time severance charges, with approximately $7.5 million related to the exchange of convertible notes for common stock in 2023.
Speaker Change: Net loss per share for Q2 improved to $0.34 compared with $2.16 a year ago. For the six months ended June 30th, net loss per share improved to $0.67 compared with $3.09 for the same period in 2023.
Speaker Change: Next, let's turn to our RPO.
Ed Sellitto: We also monitor and manage our remaining performance obligation, or RPO, in accordance with GAAP, and as noted in our financial statements. RPO provides a measure of the minimum revenue expected to be recognized from our signed contracts based on our customers' contractual commitments.
Ed Sellitto: As of June 30th, 2024, our total RPO was $4.24 million, an increase of $0.2 million over the prior quarter.
Ed Sellitto: The Q2 RPO includes deferred revenue of $0.24 million.
Ed Sellitto: Deferred revenue represents advanced payments received, which are not yet recognized as revenue. The current RPO also includes $4 million in additional non-cancellable revenue, which has not yet been recognized, under contracts that were signed in 2023 and through June 30, 2024.
Ed Sellitto: This compares favorably with the RPO as of June 30, 2023, which was approximately 0.4 million.
Ed Sellitto: We expect to recognize the full RPO of $4.24 million over the entire life of the contracts, which are typically signed with a three-year term.
Ed Sellitto: Over the next 12 months, ending June 30, 2025, the company expects to recognize revenue for approximately 36% or $1.5 million of the $4.24 million in RPO, based on contractual commitment and expected usage patterns.
Speaker Change: While the RPO is based on contractual terms as agreed to by our customers, the expected time to recognize revenue is based on our best estimates given the current known facts and circumstances.
Ed Sellitto: Of course, while RPO is based only on minimal contractual commitments, we have reason to believe that each of these customers will eventually exceed their minimum commitments.
Speaker Change: Turning to our balance sheet highlights.
Ed Sellitto: As of June 30, 2024, our cash balance totaled $14.4 million, which includes approximately $10 million in proceeds received from our successful June 2024 fundraise.
Ed Sellitto: Our common share is outstanding, stood at 10.9 million, with 1.5 million shares added from our fundraising.
Ed Sellitto: We will use these funds for a number of initiatives, including expanding our sales and partnerships team to drive continued bookings growth, as well as growing our customer success team to handle the increasing number of customers onboarding onto the authID platform.
Ed Sellitto: On to our non-GAAP results.
Ed Sellitto: Adjusted EBITDA loss was $2.5 million for Q2, compared with a $1.7 million loss for the same period last year.
Ed Sellitto: For the six months ended June 30th, 2024, adjusted EBITDA loss was $4.9 million compared with the $3.9 million loss for the same period last year.
Ed Sellitto: The increase in EBITDA loss is primarily due to our reinvestment in identity domain experts across sales, engineering, and customer success following the early 2023 restructuring.
Ed Sellitto: We also monitor and report on ARR, or Annual Recurring Revenue, which is defined as the amount of recurring revenue earned during the last three months of the relevant period, as determined in accordance with GAAP, multiplied by four.
Ed Sellitto: The amount of ARR as of June 30th, 2034 increased to 1.12 million, as compared to 0.14 million of ARR as of June 30th, 2033.
Ed Sellitto: Turning to BAR, or Booked Annual Recurring Revenue, which is the projected amount of annual recurring revenue we believe will be earned under contracted orders looking at 18 months from the date of signing of each customer contract.
Ed Sellitto: The gross amount of bar signed in the second quarter of 2024 was $0.6 million, approximately three times the $0.2 million of gross bar a year ago.
Ed Sellitto: The gross amount of the bar signed in Q2 also increased quarter over quarter from the gross bar of $0.1 million signed in Q1.
Ed Sellitto: Our Q2 bar included both direct and channel partner-signed deals representing use cases in gaming, cannabis, compliance, gift cards, and universal basic income.
Ed Sellitto: [inaudible]
Ed Sellitto: NetBAR, which reflects the deduction of BAR from contracts previously included in reported BAR, which were subject to attrition during the quarter, was $0.4 million compared to $0.2 million of NetBAR signed in the second quarter of 2023.
Ed Sellitto: As previously explained during our first quarter earnings call, BAR comprises two components which we refer to as CAR and UAC.
Ed Sellitto: Car or committed annual recurring revenue as shown in the dark purple on the chart represents the total annual customer contractual commitment through fixed license fees and minimum usage commitments.
Ed Sellitto: These commitments are directly recognized as revenue each contract year after the customer goes live with the service.
Speaker Change: The Q2 2024 CAR represents 0.35 million, or 56% of reported BART.
Speaker Change: UAC, or Estimated Usage Above Commitment, as shown in the light blue on the chart, is an estimate of annual customer usage that will exceed contractual commitments.
Ed Sellitto: The Q2 2024 UAC represents the remaining 0.27 million or 43% of reported VAR.
Ed Sellitto: Turning to our Revenue Growth pages.
Ed Sellitto: As we work to build a sustainable recurring revenue stream, we continually review our progress through the following revenue growth stages.
Ed Sellitto: The first milestone we use to monitor our growth is bookings as measured by bar.
Ed Sellitto: For the six-month period ending Q2 2024, we realized the total gross bar of $0.73 million, approximately a $0.5 million increase over the same period last year.
Ed Sellitto: Regarding our customer financial commitments, we monitor our Revenue Performance Obligation, or RPO.
Ed Sellitto: As I detailed earlier, as of the end of the quarter, we've secured over 4.24 million in RPO, a 3.8 million increase over the RPO secured by the end of Q2 2023.
Ed Sellitto: Our third reporting metric is revenue is recognized in accordance with GAAP.
Ed Sellitto: Our year-to-date revenue of $0.44 million grew substantially over the same period in 2023.
Ed Sellitto: And as our customer contracts mature, we will increase our focus and monitoring on customer retention and expansion.
Ed Sellitto: Key efforts will include refining our sales and support methodologies to deepen our customer relationships and increase the value added by our services through continued usage growth, use case expansions, renewals, and the upsell of new relevant products.
Ed Sellitto: Looking at our full year targets and guidance for 2024.
Ed Sellitto: i
Ed Sellitto: On our revenue growth, we're pleased with our quarter-over-quarter and year-over-year revenue growth in Q2, and reiterate our guidance of $1.4 to $1.6 million in revenue for the full year 2024, based on the contracts we have in place, and as our customer implementations continue to progress in the remainder of the year.
Ed Sellitto: Looking to book DRR, our sales pipeline grew in the second quarter to over $25 million. Based on this robust growth and our projected close dates, we remain committed to our previously stated target of $9 million in bar for 2024, which represents a 3x year-over-year growth.
Ed Sellitto: If we retrieve $9 million in BAR, dependent on the level of our customer commitments and term lengths, we would expect to also grow our remaining performance obligation to a range of $12 to $13 million.
Ed Sellitto: In summary, authID continues to make progress in advancing our sales and financial momentum.
Ed Sellitto: We improved our balance sheet with our recent fundraise, and we continue to post strong metrics that reflect quarter-over-quarter and year-over-year growth.
Ed Sellitto: Our direct sales team and channel partners are expanding our sales pipeline, signing new customers, and our customer success team is working diligently to help onboard and ramp these customers as quickly as possible.
Ed Sellitto: We're confident that we'll continue our growth in revenue and value creation for our shareholders.
Ed Sellitto: With that.
Ed Sellitto: I'd like to open up for questions. Let's turn back to Graham, who will moderate.
Graham: Thank you, Ed. To participate in the Q&A, you may type your question using the Q&A icon in the Zoom menu, usually located at the bottom of your screen.
Speaker Change: To join our call and verbally ask a question in person, tap the raise your hand icon in the Zoom menu or mention it in the Q&A.
Speaker Change: Our first question is from Gary Brody. Gary, good to see you on the call. Please go ahead.
Gary Brody: Hi, thanks, Graham. I appreciate you taking my call or my question. Ron and Ed, I've got a question for you guys. I know you kept the revenue and bar guidance the same, so booking sales about nine million for the year.
Gary Brody: And then you put up that great slide showing the current pipeline is $25 million, made up of 83 potential deals.
Speaker Change: Can you walk us through how you get from that $25 million in pipeline or discussions that you're having to $9 million in bookings this year?
Gary Brody: i
Ed Sellitto: I'll start, Ed.
Ed Sellitto: So, Gary, as we've shared, as we shared in previous earnings calls, we categorize
Ed Sellitto: the deals and in basically three buckets. First bucket is what we call the customer and client that really fit the use case very closely and we could basically win the business with our current capabilities and maybe win the business with pricing and we call that the fast 100.
Ed Sellitto: The second bucket that we are looking at is this group of strategic large enterprise accounts.
Ed Sellitto: We're talking about the top five banking institutions in the world and essentially probably the top mega clients of each vertical in each industry and that those types of customers fall in our strategic enterprise bucket which we call the FAT 100.
Ed Sellitto: And then we just quickly generated over the last, basically in Q4 of last year, we stood up a new program with our channel, with our partners, to be able to acquire and sell more deals without using the burden of my own Salesforce. And that is through the channel.
Ed Sellitto: So essentially, we basically have two buckets of accounts that we go after with minimal company effort, right? One is the Fast 100, where we just have great product market fit and the use cases.
Ed Sellitto: Two, with the channel partners where they're basically finding the deals for us and we're supplying them the technology. And then this third bucket part that takes a lot of time, that is with these enterprise large institutions.
Ed Sellitto: [inaudible]