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spk03: Greetings and welcome to the EPSID Inc. DBA Auth ID AI 3rd Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Grace DeVries, SVP Marketing Communications and Investor Relations. Thank you, Ms. DeVries. You may begin.
spk02: Thank you, operator. Good afternoon, everyone. I want to advise you that the slides today are, you can advance them yourself, so we will direct you as to which slide we're referencing. With me on today's call are Tom Timo, our CEO, Tripp Smith, our President and CTO, and Stuart Soller, our Chief Financial Officer. By now, you should have access to our third quarter 2021 press release. If not, it can be found on our website, www.authid.ai, under the Investor Relations section. Throughout this conference call, we will also 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. You can now advance to the second slide. Before we begin our formal remarks, I need to 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 2020 Form 10-K, which is available at www.sec.gov. I'd now like to introduce our CEO, Tom Timo.
spk01: Thank you, Grace. I'm on slide three. I'm excited to speak to our investors today. This is our first update since our uplift to NASDAQ on August 24th. And not only will we talk about our results from the quarter, we will also share the exciting developments that came out of our market and product launches at Money 2020 on October 24th in Las Vegas. There we unveiled Off-ID Verified, a self-service solution that allows you to use a selfie cloud biometric to replace those much-hated one-time passcodes and passwords. Slide four I'm on now. Verified is our disruptive wedge. Our marketing and sales efforts are laser-focused on on the messaging of replacing one-time passwords and knowledge-based authentication with cloud biometric authentication. With one selfie, Verified delivers increased accuracy far beyond the legacy authentication solutions since it ties who you are, your face, to an account, not just a device or a code, not an answer to a question that can be sold on the dark web. Verified offers secure self-service account recovery and reduces enterprise password reset costs. With a simple turn of the wrist and a selfie, Verified authenticates a user with no friction, no struggle to find the PIN code, or remember the place where you met your best friend. Quite simply, Verified delights customers. Moving to slide six. When I assumed the role of CEO in June, my first task was to review the assets, resources, and strategic direction of the company, assess where there were gaps and room for improvement, and then come up with a plan to rectify them. We knew that the company had best-in-class technology, but what else did it need to succeed? First and foremost, the company needed capital and a bigger platform from which to attract investors, as well as to give comfort to prospective customers in particular, major financial institutions. We therefore pushed ahead with our public offering and uplisting the NASDAQ, which we were delighted to complete in a very quick two months, culminating on August 24th. Becoming a NASDAQ-listed company establishes OffID in the premier rank of identity providers in our industry. It provides validation to both investors and customers about that we operate under the highest standards of corporate governance and with full transparency. NASDAQ allows even the smallest investors to participate in an early growth company with large market opportunity. Ringing the NASDAQ closing bell was truly a gratifying experience and certainly a culmination of a lot of hard work. I want to thank again our team, our professional advisors, and you, our loyal investors, who helped us achieve this important milestone. Moving to slide seven. Our next urgent task was to build out the management and operational team. An important part of realizing our vision and preparing our company to replace one-time passwords and knowledge-based authentication revolves around team building and culture. To that end, our leadership team has been busy mapping out key positions, recruiting quality candidates, and hiring the most qualified experts in their respective fields. Over the past two months, we have added more than a dozen employees into key roles, including product management, sales, where we now have eight people comprising inside sales and sales director roles, customer success, marketing, and engineering. We have also onboarded several key vendors on the technical and engineering side, which is an efficient and productive way to allow us to scale faster as we move into growth phases. On the culture side, we have made significant strides in adding diversity, both gender and ethnic, to our management team and to our workforce. Of the team members added, I'm proud to share that 45% of the individuals are people of color and or women. We believe that a culture built on diversity not only creates a more desirable workplace, but also is one that strongly supports our commitment to ethical AI, enabling us to provide products that are agnostic to ethnicity and are more effective in the marketplace to better serve society more broadly. Moving to slide eight. The point of our investment in the Money 2020 event and this launch of our verified product is simple. When businesses and consumers think of replacing one-time passcodes and passwords, We want them to think of Off-ID. I believe we accomplished our mission. We had thousands of guests at Money 2020 laughing hysterically and singing along with our Prince impersonator to the replacement of the song Purple Rain with our own rendition of Password Pain. Even the Prince impersonator himself admitted... but he feels the pain of passwords and one-time PIN codes. By prominently featuring our name, our messaging, our people, and our product in prominent view throughout the conference venue and across Las Vegas, we generated substantial brand recognition. Attendees throughout the show said over and over, yeah, off ID, I've heard of you. Slide nine, during the Money 2020 event, conference, our team, we conducted a survey. The survey allowed us to gain insights about current and emerging trends on identity authentication and increase perception of AuthID as a thought leader in the identity space. The key findings of this survey include 88% of the respondents cite familiarity with biometric authentication, 80% excited concerns about the enterprise risks associated with one-time passwords and knowledge-based authentication. Seventy-five percent are also concerned about customer dissatisfaction with OTB and KBA and them abandoning a transaction. Lastly, and most importantly, 84 percent of the respondents plan to increase investments in identity authentication over the next 12 months. This survey tells us that fintech companies, banks, and credit unions are deeply concerned not only about the risks associated with one-time passwords and knowledge-based authentication, but also the customer abandoning transactions midstream due to the friction and hassles that come with these legacy authentication processes. It also tells us that our messaging on replacing vulnerable one-time PIN codes and knowledge questions with cloud-based biometric identity authentication is resonating. Finally, the survey data with responses from mid- and high-level executives across fintech and banking support our belief that there is a large market opportunity for AuthID. Moving to slide 10. The advertising, the party, prints, and password paying yielded results. Over the three days we were at Money 2020, we met with hundreds of fintech and banking executives as well as FinTech providers. Every day our booth was overflowing with attendees, speaking with our expanded sales team, watching demos, and experiencing the seamless nature of our biometric web solution. Needless to say, they were all interested in gaining a greater understanding of how they could quickly and easily deploy a cloud biometric selfie to replace one-time passcodes. At Money 2020, it became clear that we were the only provider of portable biometric authentication in the cloud, rather than something that's chained to the device, such as a PIN code sent over SMS to a device they may not have in their possession, or an authenticator app that you have to open on your mobile phone. Our inline web browser-based product means we are device agnostic. The user can authenticate their identity and access to an account easily on desktops, laptops, mobile tablets, and phones. It means they do not have to download a separate mobile authenticator app, enroll their profile, or type in PIN codes. Instead, they authenticate easily by turning the phone towards their face. As Satya Nadella, the CEO of Microsoft, famously said, it's not the device that's mobile. It's the person that's mobile. By comparing a live selfie to a cloud biometric, AuthID is verified, embodies, and delivers upon that vision. Other services that authenticate a device or a pin code do not. AuthID provides frictionless biometric authentication through our web-based interface regardless of whether the user is on a Windows laptop, a Mac, an iOS device, an Android tablet, or a Chromebook. The device does not matter. It's your face that authenticates you. Moving to slide 11. And our AuthID development and customer success teams were also hard at work in the third quarter. launching with several significant clients and partners. Here we highlight two. Hamilton Reserve Bank. In the third quarter, we brought Verified live with Hamilton Reserve Bank, a global bank serving a large and rapidly expanding worldwide clientele, supporting customer activities in more than 150 countries and offering customer deposits in 10 different currencies. This service was deployed as part of our partnership with Temenos, a global banking platform provider. As HRB launches new digital banking service with the Temenos Infinity Banking Platform with goals of enrolling 1 million customers over the next 12 to 18 months, AuthID.ai is delivering high levels of identity assurance to HRB's expanding international clientele. Our biometric identity products are helping HRB reduce operational costs of passwords, mitigate security risks arising from stolen passwords, phishing, and account takeovers, and ultimately deliver seamless customer experience that fully satisfies HRB's insistence for the best international standards in AML, KYC, and CFT compliance. In the words of Prahakar Kaza, the CEO of HRB, Hamilton Reserve Bank's new digital banking platform, makes it possible to achieve our mission of onboarding one million new customers within the next 12 months. Providing our valued customers with a seamless authentication experience was paramount to our growth. AuthID.ai's cloud-based biometric authentication has helped us eliminate passwords and secure our customers' valued transactions including swift wire transfers and beneficiary changes. Next, CU NextGen. Another key partner launched in the third quarter was CU NextGen, a credit union service organization supporting more than 40 credit unions across the U.S. In the third quarter, CU NextGen rolled out our identity services to their credit union portfolio to transform the way they recognize their members, both digitally and in person, with similar consistent experiences. OFFID is committed to helping financial services companies combat identity fraud by knowing with biometric certainty who is transacting on their platform. And again, let's turn to what our client, Kent Zimmer, the CEO of CU NextGen, has to say about OFFID. By adding OFFID's biometric identity services to our platform, we can help our members reduce risk deliver enhanced identity trust, and offer the seamless convenience of passwordless login for credit union members. In addition, in the last few weeks, we have added three customers in the financial services industry and one of the leading international nonprofit organizations. The off-ID value proposition, and with our new disruptive web verified, is incredibly simple to understand, and I believe this will enable us to continue to increase deal flow as we execute on our mission. I'm moving to slide 12 now. In order to achieve our strategic and financial objectives, we need to build on these early successes and increase the pace at which we achieve sales. We are using a proven playbook to generate leads, turn them into qualified prospects, and convert them to book deals. Our marketing and sales teams have been working hard to focus our message and lead our efforts with what we consider to be the disruptive wedge, replacing one-time passwords and knowledge-based authentication with cloud biometric authentication for password recovery. We believe this will be a successful strategy for winning this market. How will we know? There are a number of key performance indicators, or KPIs, that I will be closely monitoring over the coming months in order to see if our efforts are working and to give management greater visibility towards future results. As we gather more data, we will start sharing these with analysts and investors, probably starting in the middle of 2022 to better inform the market and enable us to provide credible guidance. That's not something we are able to do today, but I will share with you some examples. To be clear, these metrics focus on our new identity products, verified, proof, and authentified, and any other innovative products we may launch in the identity space, rather than on our legacy business. You should be aware that most of these are non-GAAP metrics that do not replace our GAAP financial statements that we believe will enhance your understanding of our business. As you can see, we plan to capture several key performance indicators. First, Identity Booked Annual Recurring Revenue, or as we refer to it, BAR. This highlights the value of recent contract signings based on the minimum amounts that each customer has committed to upon signing. Next is identity deferred revenue. This balance sheet item represents cash received that we cannot yet recognize as revenue under GAAP, but we expect to fully recognize in future periods. Finally, identity annual recurring revenue, or ARR. This is an average of the monthly revenue earned in the previous three months and annualized by multiplying by 12. This is perhaps the most significant of the three as it shows the current revenue run rate. It is also a KPI we will use to measure internal sales performance and incentivize our sales and management teams. As you can see, the focus is on generating revenue and gaining visibility as to what revenue we can expect based on hard facts, namely new contracts, cash, and billings. At the appropriate time, we will start to report these and other KPIs as part of our quarterly calls, and we believe that if we are able to show growth in these metrics, they will translate into progress on our goal of top-line revenue growth. With that, I would like to turn the call over to Tripp Smith, our president and CTO, who will start with slide 13. Tripp? Thank you, Tom.
spk05: We put a major emphasis on our launch of the verified biometric authentication product at Money 2020. Leading up to this launch, our engineering team invested efforts to develop new integrations, demos, and onboarding flows for our verified products. As a result of our progress, we were able to achieve our goal of offering new customers a self-service onboarding process that includes developer quick start documentation, API documentation, and a simple self-service sign-up process that enables our customers to easily convert from a web form to a 14-day trial of Verified. We made our Verified product so easy to implement that a customer can onboard themselves and immediately integrate their authentication workflows with a simple copy-paste of just a few lines of code. As we move into the fourth quarter, key additions to the team, including our SVP of product, Jeremiah Mason, will focus on continuing to enhance user experience in pre-configured partner integration. Thank you. Now I'd like to turn the call over to Stu Stoller, our CFO, so he can provide an overview of our financial results for the third quarter of 2021. And we'll move to slide 14.
spk04: Thank you, Tripp. The financial results as we reported in our earnings release and recently filed from 10Q reflected changes in our operations and our business that have occurred and will occur as a result of our management changes, rebranding, and building our focused sales and marketing efforts. As you can understand at this early stage in our product launch and sales and marketing activities, we will not be giving any guidance as to future results at this time, although I will touch on certain financial trends that we expect to see in the coming months. All of my remarks will be comparing the third quarter, September 30th, 2021, with the third quarter ended September 30th, 2020, unless specified otherwise. Quarters net loss increased by 3.3 million from a year ago. Adjusted EBITDA loss rose by 1.5 million during the quarter as we began to make investments in key new hires marketing, and technology. Adjusted EBITDA is adjusted earnings for interest, taxes, depreciation, and amortization, and other non-cash or non-recurring items as defined by auth ID and as a proxy for cash flow. You can refer to our earnings release in 10Q for reconciliation of adjusted EBITDA to comparable GAAP information. Quarterly revenue was flat as our new marketing initiatives only began in the third quarter and the focused product offering was introduced at the end of October at Money 2020. We expect these new marketing initiatives and product launches to be successful, in which case we anticipate revenue will expand in the fourth quarter and into 2022. Tom has previously mentioned the metrics we will use to measure our progress. Operating expenses increased by $4 million compared to 2020 principally due to higher non-cash stock compensation expenses, salary costs, and professional fees. The increased professional fees were principally due to the shift in our strategic focus. We can expect increases in the fourth quarter. We can expect expenses in the fourth quarter beyond to continue to trend up as ORTID continues to invest in sales, marketing, and technology resources for the future. The fourth quarter will also include costs associated with Money 2020. We set both marketing and sales objectives to flow from the show, and we have been tracking these metrics closely. We believe that Money 2020 was successful and a worthwhile investment and will convert to pipeline sales and revenue as we close these opportunities. Further, certain costs incurred in Q3 were required to relaunch the business and therefore will not recur in future quarters. Of course, we will be cautious with our cash and capital as we expand the business. Other non-operating items improved in the quarter as interest expense was dramatically reduced due to a majority of the company's convertible debt being converted into equity in June 2021. In addition, the company's second PPP loan was forgiven in Q3 in accordance with federal law and which the accounting rules required to be recorded as a gain on the extinguishment of debt. Following the successful public offering, the company had $9.2 million of cash at September 30, 2021. Outstanding indebtedness and accrued interest was $0.7 million, with the majority due in February 2022. We expect the majority of the $0.7 million to be converted to equity as the conversion price is $6 per share relative to today's market price of approximately $17. That concludes my presentation. Operator, we would like to open the call to questions.
spk03: Thank you. Thank you. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one on your touchtone telephone. Again, that is star one. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Again, if you would like to ask a question, that is star 1. And I'm seeing no questions at this time. I would now like to turn the call back to Team Timo for any further remarks.
spk01: All right. I want to thank all our investors for taking the time to hear us today. And we look forward to reporting to you in the future. The one closing remark I'd like to say relates to our final slide in the deck, slide 16. And that is there really are three things the large markets that we are pursuing. The first is to eliminate one-time passwords and knowledge-based authentication. Once we allow companies to eliminate one-time passwords and KBA, we can really turn to eliminating all passwords, the entire username and password ecosystem. Finally, That will enable us to be the company that helps businesses recognize their customer. So thank you very much from all of us at AuthID. Thank you for the opportunity to serve you, our investors, our customers, our partners. Thank you. We can conclude the call, Operator.
spk03: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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