authID Inc. (AUID) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the authID 2023 Annual Shareholder Meeting. [Operator Instructions] Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Mr. Joe Trelin, authID Chairman of the Board. Mr. Trelin, please go ahead.

Good morning, ladies and gentlemen. I'm Joe Trelin, Chairman of our company, and I will be serving as Chairman for this meeting. On behalf of authID, I want to welcome you and thank you for attending this meeting of the stockholders. To start, I'd like to introduce our CEO and Director, Ron Daguro, our CTO and Director, Tom Szoke, and our Non-Executive Directors, Ken Jisser, Michael Koehneman, Mike Thompson and Jacqueline Smith (sic) [ White ], as well as our General Counsel and Secretary, Graham Arad and our Chief Financial Officer, Annie Pham, are in attendance via conference call. I'd also like to introduce [ Adam Hunter ], a partner; and Johan Martinez, a senior manager at the accounting firm of Cherry Becker, LLP, the company's independent accountants. We will first proceed with the formal business of the meeting as set out in the notice, which is sent to our stockholders. We'll then have a presentation by management followed by a question-answer session. Please note that questions can be posted at any time by clicking on ask a question at the top right of your screen on the meeting center portal. The meeting is called to order, Graham Arad, General Counsel and Corporate Secretary, will act as Secretary of this meeting. If any stockholder has any questions about the resolutions that are about to be proposed at this meeting, please post them now by clicking on Ask a Question, at the top right of your screen, and we will address them prior to dealing with those proposals. If you are a registered stockholder and you have not yet voted, please do so now by going to investorvote.com/auid. You must be logged on as a stockholder with the control number sent to you in order to vote. If you are a beneficial owner of the shares held in straight name and you wish to vote in person at this annual meeting, you needed to have made arrangements with your broker prior to the meeting and if you have not done so, I regret you will not be able to vote at this time. [ David Cohen ] from Computershare has been appointed as Inspector of Election for this meeting. He has taken the customary oath of office and will be filed with the permanent records of the meeting -- which will be filed with the permanent records of the meeting. Will the Secretary please report the number of shares outstanding and entitled to vote at this meeting?

The Board of Directors has set the close of business on May 5, 2023, as a record date for stockholders entitled to notice of and to vote at this meeting. A certified list of stockholders entitled to vote at the meeting is available and may be inspected by any stockholder. As of the date, 25,864,437 shares of common stock were outstanding. Each share being entitled to one vote on all matters before the meeting.

Under the bylaws, 1/3 of the shares entitled to vote present or represented by proxy constitute the quorum necessary to conduct business at the annual meeting. A tally by the inspector of elections indicates that a quorum is present and the meeting will proceed on that basis. A final count of the exact number of shares present will be included in the minutes of this meeting. The Secretary will summarize the business of the meeting as set forth in the notice of meeting and proxy statement filed May 17, 2023.

Thank you, Mr. Chairman. This meeting has been called to consider and vote upon the election of the 7 directors named in the notice to serve until the next Annual Meeting of Stockholders. Two, to consider the ratification of Cherry Beckett LLP as the independent auditors of the books and accounts of the company for the fiscal year ending December 31, 2023; Three, to consider an amendment of our membered amended and restated certificate of incorporation to effect a reverse stock split at a ratio of not less than 1-for-2 and not greater than 1-for-50. Four, to approve and ratify the authorization of an additional 2.9 million shares of common stock for issuance under the 2021 equity incentive plan and finally, to transact such other business as may properly come before the meeting. Directors will be elected by a plurality of the shares of common stock presence and voting in person or by proxy at this meeting. A majority of votes cast is required to approve the auditor appointment with the increase in the equity incentive plan shares and the majority of the votes attaching to all outstanding shares is required to approve the reverse split.

This meeting will take up separately each of the items of business. Mr. Secretary, have any questions been received related to the resolutions?

No, they have Mr. Chairman.

Okay. The first order of business then is the election of directors. I recognize Graham Arad.

On behalf of the Board, I nominate the following persons for election as directors of the company to hold office until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. The nominees are Rhon A. Daguro, Joseph Trelin, Ken Jisser, Michael Koehneman, Thomas Szoke, Michael Thompson and Jacqueline White.

I second the nominations.

As no further nominations were timely received in accordance with the bylaws declared -- I hereby declare the numbers for directors are closed.

We'll now proceed with the consideration of the ratification of Cherry Beckard LLP as the independent auditors of the company. Representatives of Cherry Beckard LLP are present and are available to answer any questions you may have during the question-and-answer period.

Mr. Chairman, I move the adoption of the following resolution. Results of the Board of Directors' selection of Cherry Beckard LLP as the independent auditors to audit the books from accounts of the company for the fiscal year ending December 31, 2023, is hereby ratified and approved.

I second the motion. We will now proceed with the consideration of the reverse split.

Mr. Chairman, I move the adoption of the following resolution. Resolved that the adoption of an amendment to the amended and restated certificate of incorporation, substantially in the form attached to the proxy statement to affect a reverse stock spread of a ratio of not less than 1-for-2, not greater than 1-for-50, the exact ratio to be set within that range at the discretion of the Board before June 30, '24 -- 2024. Without further approval or authorization of the stockholders be and it is hereby approved and further resolved that the Board may alternatively elects abandon such proposed amendment and not affect the reverse stock split authorized by the stockholders in the Board sole discretion.

I second the motion. We will now proceed with the consideration of the increase in the stock plan.

Mr. Chairman, I move the adoption of the following resolution resulted in an increase of 2.9 million in the common shares allocated to 2021 equity incentive plan be and it is hereby approved and ratified. The polls are now closed. The vote on the election of directors and the other matters proposed to the meeting will now be tallied.

I ask the Secretary to report on the vote on the proposals presented at the meeting.

The inspector has reported that the following nominees have received the highest number of votes for election as directors: Rhon Daguro, Joe Trelin, Ken Jisser, Michael Koehneman, Tom Szoke, Michael Thompson and Jacqueline White. In addition, more than a majority of the shares cast have been voted in favor of the ratification of the appointment of Cherry Beckard LLP as independent auditors for the year ending December 31, 2023, and as well as in favor of the increase in shares allocated to the 2021 equity incentive plan by 2.9 million shares. More than a majority of the outstanding shares have been voted in favor of the reverse stock split. The precise voting numbers will be reported in the Form 8-K to be filed following the meeting.

And therefore, declare that the aforementioned directors have been elected members of the Board of Directors to hold office until the next Annual Meeting of Stockholders and until their successors are duly elected and qualified. I also declare that the stockholders have approved all of the remaining resolutions proposed at the meeting. The formal part of the meeting is now adjourned, and for the remainder of this webcast will be a presentation by our CEO, Rhon Daguro, followed by a question-and-answer session.

Thank you, Mr. Chairman. Before Rhon Daguro begins his remarks, I need to remind everyone that part of our discussion today may 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 discussed in our 2022 Form 10-K and our other filings, which are available at www.sec.gov. As a reminder, if you want to ask a question, please click on the ask a question button at the top right of your screen. I'd now like to hand over to our CEO, Rhon Daguro.

Good morning to all. I want to extend my sincere thanks to our Board and our shareholders for joining today's meeting, approving our corporate resolutions and providing continued support [indiscernible] to take authID to the next level. I'm pleased to have this opportunity to provide an update on the extensive work done by the authID team over the last 2 months as well as our focus going forward. As you all know, authID has undergone tremendous change in the last 3 months. In March, [indiscernible] Board of Directors was put in place. Our directors who we've just reelected are aligned with our primary objective to instill sales-centric focus for the authID business quickly. And just over 60 days since I assumed the role of Chief Executive Officer, authID has made substantial progress and [indiscernible]. I found a company with exceptional technology, a small but determined team and unfortunately, limited financing that saw 0 cash day [indiscernible]. And in this short period of time, we have successfully restructured and solidified the balance sheet, while simultaneously jump-starting a growth plan that leverage [indiscernible] technology that solves the tremendous identity challenges of our customers. To this end, we define the following priorities as critical to the offense. The first priority was Corporate Finance. We needed to secure sufficient financing to meet our current needs, restructure the balance sheet to get NASDAQ listing requirements. The second priority was to audit our technology. We undertook the strategic review of our technology by questioning what customers are asking for? What is unique about authID's technology? what efforts are needed to protect the core technology and future-proof our platform? Third, [indiscernible] based on our audit of the technology, we needed to review and revise our messaging to ensure that our demos, our strategic presentation and our detailed sales content materials reflect the big identity problems we solve, the big technology value we bring and support our customers' needs and help to [indiscernible] decision. And finally, my main priority as a former CRO, our go-to-market strategy and sales. We undertook extensive activities that I outlined during our Q1 earnings call, which were specifically designed to implement the sale-centric mindset, establish a high-performance sales organization and to build a robust sales pipeline for the short- and long-term growth of the business. Now let me spend some time over the next few minutes expanding on each of these 4 efforts. When I assumed the role of CEO, like I said earlier, authID was facing a looming 0 cash day. Accordingly, over the next 45 days, we undertook a routine [indiscernible]. Thanks to the super heroic efforts by the authID team and our financial advisers and our sole placement agents, Madison Global Partners, as well as our team and by our investors and our future, we executed our fundraise and financial restructuring on May 26 under extremely tight time frame. The fundraise secured $8.2 million in gross proceeds before expenses and included the offset of principal and accrued interest and cancellation of a 929,000 [indiscernible] into with [ Steven Garchar ]. In the fund raise, we were pleased with the continued confidence presented by the participation by existing investors, shareholders as well as our Board members. Simultaneously, with the fundraise, our stellar legal and finance teams also worked with our noteholders to capitalize [indiscernible] and vulnerable debt totaling approximately $8.9 million by exchanging it for shares of common stock. This effort was critical to improving our balance sheet and reduce [indiscernible]. With those 2 major milestones achieved, we've developed a 12-month operating budget, and we intend to use the net proceeds of the funding for loan cap and general corporate purposes. We will focus on our mission to eliminate authentication, fraud and deliver 100% Zero Trust identity verification in the year. I want to again send my sincere appreciation to all of you for this tremendous sign of support. Over the last 2 months, our product and development team has been an extensive review of our technology, our capabilities and product road map. Our updated plan is to allocate 70% of our resources and efforts to detect the [ quality ]. Within the 70% of our core focus, our engineering and development teams are prioritizing efforts to maintain maximum platform uptime availability, in terms of accuracy and speed and increased first pass transaction success rates. By focusing the majority of our resources on protecting and enhancing the core, we continue to meet the needs of our top 200 account customers with our out-of-the-box core products. Our technology road map allocates 20% of our time and resources of [indiscernible]. New code, adaptive authentication capabilities that will expand our use cases adjacent to the core use cases. Under a lot of [indiscernible] technology resources will be used towards future development of identity services for next-generation web through [ planeo ] architecture. We intend to bring on [indiscernible] on authentication and delivered on to a blockchain network for smart contract consumption for use in enterprise and customer applications across multiple industry segments. The reason why I joined authID was because the technology was absolutely superior to anything I've ever seen before. After spending over 25 years on this domain. With the rapid rise of artificial intelligence and the rapid rise of access to AI technologies for fraudsters, cyber attacks will be applied more widely across most [indiscernible] AI hacking tools become more accessible to more people with bad intent. AI technologies like DeepFace on the Internet will try to attack [indiscernible] via face and voice. So the market has to be ready to defend against these identity attacks and authID will be spearheading that defense. We've innovated the strategy to understand and blocking these threats with the utmost precision as well as maintaining our performance and speed that the market has never seen before. With [indiscernible] and solutions in the market, back-end biometric and document verification speeds are best 3 to 5 seconds, but really more like 5 to 9 seconds whereas authID only takes 700 milliseconds. In an apples-to-apples comparison, it only takes authID 700 milliseconds. 700 milliseconds is lightning quick compared to everyone else in the market. When we repeat this, authID is 5 to 10x faster than the solution in the market. Our performance on FMR and FNMR the industry standard error rates is incredible. authID is at the forefront of precision and speed when it comes to biometric authentication and password-less solutions. I am confident that our continued investment and innovation of our patented identity platform will [indiscernible]. With additional financing secured and our technology road map assessed, [indiscernible] our corporate messaging to ensure that our content and sales material reflect our technology value, support our customers' needs and advance their buying decisions. Prospective customers, they also reason that address the entire identity life cycle solutions that include day 0 onboarding with strong identity verification as well as adaptive authentication while using on-device password-less authentication and cloud biometrics that provide a higher degree of assurance and audit trail. Our platform [indiscernible] leads to both the workforce and consumer user journey by establishing a trusted digital identity during onboarding and then binding the identity to provision [indiscernible] account takeover and password compromise risks. This seamless anti-snooping liveness confirmation and delivery of a facial biometric [indiscernible] out an app, not an SDK in a browser that is authenticated in a fraction of a second to a cloud store reference template is the key to different from our competitors. authID delivers our technology seamlessly on any smartphone, any tablet or any MAC or PC, which offers our enterprise business customers [indiscernible] flexibility and portability across the range of operating systems in a variety of user populations from high tech-oriented users to low tech-oriented users. Going forward, our messaging, our sales presentations and our SEO optimization will focus on our ability to deliver trusted identity solutions to customer to have security while providing a seamless user experience. The authID team has also -- authID team has also achieved several milestones in our efforts to transform organization with a sale-centric mindset. First, I'm excited to announce that we have successfully recruited and hired 3 highly talented sales leaders. I assure you that hiring -- that our hiring bar is very, very high. These seasonal sales professionals and former software engineers who together bring over 50 years of experience in enterprise security sales and deep domain experience in identity in the areas of strong authentication and biometrics. They have expert-level presentation skills on technical topics but sold successfully to both large enterprises and fast-growing organizations [indiscernible] to authID University training program. I am looking forward to working with our new sales leaders to advance new opportunities and wins from this experienced sales team. We also launched our authID University training program. The 6 level training program with [indiscernible] build a culture of ports across the entire authID organization. In the last few weeks, we built Level 1 to focus on recall and recognize and provide our team with deep double training confidence and use cases and solution value. We are currently building out Level 2 to emphasize articulate and present in order to develop an expert level of community, built and sit on how our products work, how we solve our customers' needs and how they can best use our solutions with best deployment practices. Our teams will complete Level 1 or 2 of the [indiscernible] and we intend to build Level 3 through 6 through the remainder of the year. authID University supports our main mantra, have high value targets [indiscernible] and our partners. All right, to generate sufficient leads and high-value conversations with high-value targets. Two weeks ago, we signed an agreement with the pipeline group to provide dedicated business and [indiscernible] for outbound calling and other lead generation and sales management services. The pipeline group has a stellar reputation for bringing strong value and productivity across their sales development resources to identify and secure meetings with high-value targets with intent to purchase. The pipeline group [indiscernible] as build a unicorn business in my previous role.

Rhon. I'm sorry to interrupt you. We're getting messages that people are having trouble hearing you, and the message is being lost. So I'm going to suggest that we have the operator call you on your phone. It's not maybe something with your Internet. If we can just -- everyone bear with us for a moment, have the operator to call you on your phone and let's try the connection that way because I'm getting a lot of messages that people are having trouble hearing you.

Mr. Daguro, is it okay if you can basically mute your computer and call in on your phone number? The phone number that was provided, on that way, it could be a clearer sound over you online.

Can you call him, operator? That might be easier.

I can, but I will not be able to bring him into the call.

Okay. Can you hold for a minute while we do it this, just put everybody on hold, as [indiscernible] offline.

Everyone please remain on the line, the conference will begin shortly. [Technical Difficulty]

Commercial go-to-market slide. So the authID team has also achieved several milestones in our efforts to transform the organization with a sale-centric milestone. First, I'm excited to announce that we have successfully recruited and hired 3 new highly talented sales leaders. I assure you that our hiring bar is very, very high. These seasoned sales professionals and form with software security engineers who together bring over 50 years of experience in enterprise security sales and deep domain experience in identity in the areas of strong authentication and biometrics. They have expert-level presentation skills on technical topics but sold successfully to both large enterprises and fast-growing organizations and will be actively contributing to teachers to the authID University training program. I am looking forward to working with our new sales leaders to advance new opportunities and wins from this experienced sales team. We also launched our authID University training program, the 6-level training program with certifications designed to build a culture of experts across the entire authID team. In the last few weeks, we built Level 1 to focus on recall and recognize and provide our team with deep domain training on the products, use cases and solution value. We're currently building out Level 2 to emphasize articulate and present in order to evolve expert level communication skills and how our products work, how we solve our customers' needs and how they can best use our solutions with best deployment practices. Our teams will complete levels 1 and 2 within the next 30 days, and we intend to build out Level 3 through 6 over the remainder of the year. authID University supports our mantra, have HVCs with HVT, high-value conversations with high-value targets and is an important training program for our sales team, our customers and our partners. To generate sufficient leads and high-value conversations with high-value targets, 2 weeks ago, we signed an agreement with the pipeline group to provide dedicated business development resources for outbound calling and other lead generation and sales management services. The pipeline group has a solid reputation for bringing strong talent and high productivity across their sales development resources to identify and secure meetings with high-value targets with the intent to purchase. The pipeline is instrumental in helping me build the unicorn business in my previous role. I am pleased to share some immediate results with you. After launching services just last week, I am pleased that TPG's performance has been outstanding with over 1,300 dials in approximately 180 live calls in just 3 days, they secured 18 upcoming meetings for our sales team with some incredible company. This is a remarkable 10% conversion rate. This is absolutely world class. Turning to our lead generation and sales pipeline, we are focusing our efforts on our top 200 accounts as separating to 2 categories, tactical and strategic. For our top 100 tactical accounts, our current authID offering will meet the needs of our customers out of the box, and we will work closely to close these deals based on better commercial terms. So the top 100 strategic accounts, we intend to apply all the company's resources where we are even willing to write new code and capabilities to serve our customers' strategic needs. From these top 200 accounts alone, we have quickly developed 15 opportunities across a mixture of Fortune 500 companies in the verticals of entertainment, financial services, global payments and facilities management. These opportunities are valued at approximately $4.2 million in sales pipeline. Over the next few months, our organic efforts, TPG's efforts as well as opportunities generated by our SEO optimization efforts, we intend to fine-tune a productive, sales cadence to generate over $30 million in sales pipeline by the end of 2023. So in conclusion, I want to reiterate that I'm confident that the authID team will deliver based on the winning formula. First, we have the right market with a high-value TAM. The total addressable market for Integrated Identity Platform systems is estimated to exceed $48 billion in 2023 and projected to grow to over $115 billion by 2027. Second, as I outlined earlier, authID has the right product with clear value over the competition. Our identity platform delivers speed and precision for identity verification and authentication that is second to none. That's not just me saying that. In fact, one of our strategic targets stated, I have every DarkV technology in my labs. The fastest was 5 seconds, Nobody is doing this in 700 milliseconds. Furthermore, our user experience will define successful user adoption is also phenomenal. Again, prospects have also made lavish comments, compliments like this. I've never seen this before, we make authentication invisible. With this solution, we see a future where doctors don't use keyboards to log in. We showed authID to our CEO and our CEO wants this right now. Third, we have the right team. We have hired seasoned sales leaders with over 50 years of experience in the identity market. Our authID University program will ensure that we will find a high-performing sales organization to be hyper focused on executing based on proven sales framework and sales first mindset. Over the next few months, the team will be working aggressively to grow our sales pipeline to a target of $30 million in pipeline lead. And with our confidence and our winning formula, I'm excited to share we have set a target to put customer wins on the Board to deliver $3 million in booked annual recurring revenue over the next 12 months. So a good question at this point would be, is it working? As evidence of our new winning formula in the last 60 business days, we have already closed contracts in Q2 in the second quarter with the financial institution that has already gone live and a workforce labor provider that is finalizing their integration with our platform to go live soon. And the best part is the quarter isn't over yet. In summary, in the past 60 business days, I'm proud of the authID team and their successful efforts to strengthen our corporate financing, prioritize our technology spending, generate sales leads and develop a sale-centric culture. Once again, I want to thank all the investors for their continued faith in authID. Thank you for your time today. We would now like to open the call to questions. I will now turn back to Graham, who will moderate the questions.

Thank you, Rhon. As a reminder to all participants, you can submit your questions by clicking the Ask a Question button at the top right of your screen. Rhon, we have had a question from a shareholder. You touched a little bit on the total addressable market. Can you expand a little bit more on how you define the authID business space? Talk a little bit about the competition and how you expect that space to grow? And in fact, what unique assets authID have in order to be a winner in this space?

Well, like I said earlier, the things that were super important is that the market is absolutely large. I don't define the market. This is all the research that has been done in the marketplace. But if you just look at all the security companies, all the spend in preventing fraud and preventing risks and especially around identity and security of the market is massive, these are all taken from a report and we can cite the sources for this of multiple reports. So the market absolutely is large. You have large organizations like Okta and some of those competitors that are playing the space. And you have emerging new technology, new companies being formed every quarter to address this solution. The beauty of it is, there's no clear winner, it hasn't been solved and it's getting -- the problem is getting bigger and bigger and bigger. So that's one of the exciting things about this opportunity. The second part of this is where I covered in the winning formula is the key to winning this market is to have absolutely the highest precision possible and the fastest solution possible. So user adoption depends on speed and businesses will only buy if you're highly accurate. We have both. And that's why, again, I'm bullish on our business and bullish on our position in the marketplace to at least capture a portion of that large market that I described. And if we were able to do that and I believe we can, authID will be a fantastic business. The third part of that winning formula has to be our ability to go against the companies that had a head start. authID is starting from a an early beginnings because the technology just was recently revamped in the last couple of months. The technology hasn't seen the marketplace yet at scale. And we have done a successful job in the last 60 days to bring that messaging to absolutely the best companies in our top 200 and the feedback that I had shared earlier is some of the sentiment that we have gathered as comments that they have said after seeing the technology, and these are people who've been in the space for over 30 years and have been buying these solutions over the last 30 years. So with that being said, all signs point in the most positive direction for the business. We have a tremendous amount of work to do. I don't want to sugarcoat any of that. We have a lot of work to do, but we've started to lay down the correct framework and the foundation to start capturing some of that market.

Thank you, Rhon. Just to emphasize, one, we've had a question to explain why you think that the sales efforts that you're putting in place now and the sales organization that you're putting in place now will be more successful than has been -- the company has been in the past in achieving the sales that we're all looking for?

I'm not going to comment about the past organization or the efforts prior to me joining, all as I know is that when I had joined. I was -- I'm putting in place the necessary components that's required to actually deliver high value to our customers. When you have a tremendous technology set that authID had, the best -- the most important thing is to extrapolate the simple and concise solutions that solve use cases and business problems in the most simplest way, we simply weren't doing that in the past. We will do that now. In order to articulate them, we have to have people who have been in the space and have been able to understand this technology better than our customers. We didn't have that in the past. We have that now. And essentially organizing and tracking and putting measurements and frameworks in place to measure progress wasn't there in the past. We have that now. So these are the adjustments and changes or at least the things that we are doing and what we've put in place in the last 60 business days, we will continue to add refinement to that particular process. Luckily for me, this is the background where I came from. This is highly measurable solution problem for our customers, which leads into highly measurable sales.

Okay. Well, thank you, Rhon. It appears that's all the questions we have. I do apologize again to stockholders and other listeners that we have had some technical problems on this call. But I hope you were able to hear what was necessary in order to explain where the business is and where it's going. We will be posting the deck on the website. And of course, if you have questions, you can reach us by the -- going on to a website and clicking on the Investor button to contact us for any further information we can provide. Thank you, everyone, for joining us today, and we appreciate your continued support. Thank you, operator.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect, and have a pleasant day.