authID Inc. (AUID) Earnings Call Transcript & Summary

All right. Good morning, everyone. My name is Rhon Daguro, CEO of authID. I'll be serving as a Chairman for this meeting. On behalf of the company, I want to welcome you and thank you for attending the Annual Meeting of the stockholders. I would like to introduce our CTO and Director, Thomas Szoke; and our Non-Executive Directors, Ken Jisser; Michael Koehneman; Kunal Mehta; Michael Thompson; and Jacqueline White; as well as our General Counsel and Secretary, Graham Arad; Chief Financial Officer at Ed Sellitto; and our Senior Vice President of Solutions, Dale Daguro, who are in attendance of this webcast. We will first proceed with the formal business of the meeting as set out in the notice, which was sent to all stockholders. We will then have a presentation by management followed by a question-and-answer session. And as a reminder, this meeting is being recorded. So let's get started. The Annual Shareholder 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 have to be proposed at this meeting as shown on the screen. Please post them now using the Q&A button at the bottom of your screen. We will address them prior to dealing with those proposals. If you are a registered stockholder and have not yet voted, please do so now by going to investorvote.com/auid. You must be logged on as a stockholder with your control number in order to vote. If you are a beneficial owner of shares held in street 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, 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 3, 2024 as a record date for stockholders you entitled to notice of and to vote at this meeting. A certified is the stockholders entitled to vote at the meeting is available and may be inspected by any stockholder. As of the record date, 9,450,220 shares of common stock were outstanding each are 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 election 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 16, 2024.

This meeting has been called to consider and vote upon the election of the seven directors named in the notice to serve until the next Annual Meeting of Stockholders; two, to consider the ratification of Cherry Bekaert LLP as an independent auditors, for the fiscal year ending December 31, 2024. Three, to consider an amendment to our amended and restated certificate of incorporation to decrease the number of authorized shares of common stock from $250 million to $150 million. Four, to consider the adoption of the 2024 equity incentive plan and the authorization of 395,000 shares of common stock for issuance under the 2024 plan. Five, to consider on an advisory basis the compensation of company's named executive officers to recommend on an advisory basis one, two or three year frequency with which the company should conduct future stockholder advisory votes on executive compensation. And finally, to transact such other business as may properly come before the meeting. Directors will be elected by a plurality of the votes of common stock present and voting in person or by proxy at this meeting. A majority of the votes attaching to all outstanding shares is required to approve the authorized share decrease proposal. The majority of the votes cast is required to approve the auditor appointment, the adoption of the 2024 plan and executive compensation. And finally, a plurality of the votes cast is required to adopt the recommendation of the say-on-pay vote frequency.

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

No, Mr. Chairman.

The first order of business 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 until their successors are duly qualified -- duly elected and qualify. Rhoniel A. Daguro, Ken Jisser, Michael Koehneman, Kunal Mehta, Thomas Szoke, Michael C. Thompson and Jacqueline L. White.

I second the nominations.

As no further nominations the time we received in accordance with the bylaws, I hereby declare that nominations for directors are closed.

We will now proceed with the consideration of the remaining matters set forth in the notice of the meeting.

Mr. Chairman, I move the adoption of the following resolution. Resolve that the Board of Directors' selection of Cherry Bekaert LLP as independent auditors to audit the books and accounts of the company for the fiscal year ending December 31, 2024, is hereby ratified and approved.

I second the motion.

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 reduction in the number of shares of common stock, which the company is authorized to issue from $250 million to $150 million be and it is hereby approved.

I second the motion.

Mr. Chairman, I move the adoption of the following resolution. Results of the 2024 equity incentive plan be and is hereby approved, adopted and ratified that they'll be allocated to reserve for issuance under the plan, 395,000 shares of common stock, together with such number of shares of stock are available for awards under the company's 2021 equity extensive plan which are not allocated to any award of grant as of the date hereof. And further, that if any award granted by the company, whether or not previously made under the 2024 plan, shall, for any reason, terminate lapse or expire, any shares allocated there too, but remaining on purchase upon such termination lapse or exploration shall again be available for grants with respect there to under the plan in addition to the above 395,000 shares as if no granted previously occurred with respect to such shares.

I second the motion.

Finally, Mr. Chairman, I move the adoption of the following resolutions, results of the compensation of the executive officers of the company for the year ended December 31, 2023, as disclosed in the proxy statement for this meeting, being it is hereby approved and resolved that the company should hold votes approved on an advisory basis the compensation of named executive officers every 3 years, 2 years or 1 year.

I second the motions.

The polls are now closed. The votes on the election of directors and the matters proposed to the meeting will now be tallied.

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

The inspector has reported the following nominees have received the highest number of votes for election as directors: Mr. Daguro, Mr. Jisser, Koehneman, Mehta, Szoke, Thompson and Ms White. More than a majority of the shares cast have been voted in favor of the ratification of the appointment of Cherry Bekaert as independent auditors for the adoption of the 2024 equity incentive plan and for the approval of executive compensation. The highest number of votes which received for a say-on-pay vote to occur every 3 years. More than a majority of the outstanding shares have been voted in favor of the authorized share decrease. The precise voting numbers will be reported in our Form 8-K to be filed following the meeting.

I 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 the remaining resolutions proposed at the meeting. The formal part of the meeting is now adjourned. And for the remainder of this webcast, there will be a short presentation followed by a Q&A session.

Before Ron 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 2023 Form 10-K and our other filings, which are available at www.sec.gov. You can submit written questions using the Q&A button at the bottom of your screen. If you would like to ask a live question at the appropriate time, please indicate that using the Q&A function or tap raise your hand, and you'll be advised to speak. As a reminder, this conference is being recorded. I'd now like to turn the call over to Rhon Daguro, who will provide some business insights.

Before I get started, 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 of our efforts to advance the success of authID. One year ago today, I conducted my very first authID shareholder meeting have been disappointed as Chief Executive Officer and Board member. I am extremely pleased that we have made tremendous progress over the past year where we assembled a new team of identity and biometric authentication experts, increased our market capitalization by 10x and executed on 12x bookings growth compared to 2022. And in a very short time frame, we reported our -- in our last earnings call that we are on path -- a revenue path never executed in the history of the company. Next slide. Last night, our momentum continued with the announcement of our successful fundraise that secured $11 million in gross proceeds before expenses. I want to recognize the extended efforts of our financial advisers and our sole placement agents, Madison Global Partners, who did a great job of balancing our needs for a capital raise as well as our needs to stay focused running the business and servicing our customers. This fully subscribed investment by current shareholders, a fellow director and new investors is a tremendous sign of confidence in our mission, and I thank all the investors for their continuing support. Today, we have built the strongest biometric identity platform for stopping fraud and solving the most difficult authentication challenges for our customers. We will use these funds for a number of initiatives, including expanding sales and operations to gain greater traction in those industries where we have recently acquired accounts. We also plan to grow our customer success team to handle accelerated numbers of clients requiring support and going live on the authID platform. Your votes of confidence help us continue to strengthen, innovate and differentiate our product road map with technology that stays ahead of today's malicious generative, AI-driven identity fraud and strengthens our position as thought leaders to our customers. Now as we look to the year ahead, let me turn the presentation over to Dale, who will share some insights on how fraudsters are taking advantage of weak legacy authentication methods and how authID addresses these big problems in the market.

Thank you, Rhon. We'd like to share a couple of practical examples on how fraudsters will launch a digital identity attack. One example will be where fraudster used is biometric of their intended victim or the ID document of their intended victim. The first main attack is something that we call a presentation attack and by volume of what we see today in production, this makes up roughly 90% of the attacks in production today. What this looks like is a fraudster obtains a printed copy of an ID documents or a printed copy of the biometric or they purchase a digital version of that biometric or that ID credential and presented on their monitor or screen. And lastly, they could even go to the lengths of creating a mask of that intended victim. And when challenged for an account opening flow, they'll point the camera at one of those 3 assets. authID has countermeasures in place today to detect when this type of attack is present. We can detect whether that face was actually live or that ID document was actually live. And to be candid, many of the similar solutions in the marketplace can also perform this as well. Where authID begins to differentiate itself from the marketplace is in this new category of attack called an injection attack. And this is particularly alarming because this type of attack can even fool a fraud investigations human review team. And in this category of attack, as Rhon mentioned, generative AI is enabling deep fakes to come through. In addition, stolen biometrics and stolen ID credentials obtained in wide-scale data breaches are being able to flow through this type of attack as well. 3D renders, face morphing and swaps all gradients of the above aforementioned attacks are able to be exploited through hardware, software or even network attacks. This is particularly dangerous because in a fraud investigation that can fool a human reviewer, this creates a systemic problem in getting the labels incorrect for any machine learning-based fraud detection model. Thankfully, authID has developed technologies to detect when this injection tech is present. In addition, when those assets flow through, we can even understand that the assets and pick up on when visible artifacts and invisible artifacts would indicate that this asset was injected. As a real life example, if a fraudster were to purchase a stolen certified ID credentials, in a data breach for all intents and purposes, this is actually a legitimate ID. A fraudster will then look for the intended victims biometric, let's say they'll go to LinkedIn, Facebook or Instagram, train a model through a computer or generative AI program to create a deep fake of that individual. The intent with that deep fake is to full legacy solutions into believing that the biometric of that individual is live by blinking and smiling, looking up and down, looking left and right. The fraudster will then utilize the tool to inject the stolen and manufactured assets into an account opening flow here. The fraudster will use this tool begin the onboarding flow on the left, use their tool to inject a stolen video feed of that legitimate ID document and inject it into the onboarding flow for the front of ID. The fraudster will then use their tool to flip it to the back of the ID and inject it again into this onboarding flow. And lastly, they'll take the manufactured deep fake of that victim and inject their biometric into this onboarding flow. In legacy solutions, this would go undetected. And in fact, when reviewed by a human review team, it will be presented as legitimate. With authID's technology, we can stop this at the top of the funnel, detect that there was an injection and potentially the usage of their stolen or a deep fake category of assets. Another practical example and a vulnerability of that many of us know very well is the pattern of SMS onetime pin or e-mail onetime pin codes to protect our most valuable assets are wealth. In an example, an end user authenticates with their financial institution using one of these authentication patterns, user name and password, pass keys, device-based biometrics and even behind the scenes look at geolocation and behavior of that individual. The thing is the financial institution has already said that these authentication patterns are weak. We know this because when it's time to conduct a high-risk transaction, let's take a wire transfer as an example. What they'll try to do is use an SMS onetime pin as a means to protect the account from our fraudster. When we examine this a little bit more closely, Unfortunately, we understand that the financial institution really has no knowledge control or influence over this final security measure that is designed to protect the financial institution from the riskiest possible transaction that can be conducted on the platform. A fraudster will use this exploit to conduct a SIM swap attack on their victim by porting their phone number over to a device that they can control. At the end of it, the root of trust really relies upon a call center agent and a mobile telco to execute upon the set of security measures that can vary from mobile telco to mobile telco and can also depend on the training of that call center agent to detect when they're being socially engineered out of a SIM swap. More alarming is that the fraudsters will identify high net worth individuals and provide a bounty to a retail worker to swap the phone of that high net worth target. Thus, gaining control over these onetime pins and draining the funds out of these accounts. The last scam that I wanted to highlight that authID is introducing to the protection of is this weired transfer scam. And this one is a very elaborate scam. Here's where the fraudster has purchased a collection of user name and passwords that are stolen and they work. When they find a set of credentials that actually work, they log into the victims of accounts, understand it has enough funds worth their time. And when they find one that does, they will send a text message to that victim saying something along the lines of, "A wire transfer has been started for $13,000 reply Y to confirm or reply N to deny." And in a panic, that victim will, of course, reply N to decline this. At this moment, the fraudster knows that they have the victim on the hook. They will then spoof the fraud department phone number of that financial institution and immediately called a victim. They will say to victim, "Sir, we understand that we -- you wish to decline this wire transfer. Thank you for applying. We'll gladly cancel this. Our fraud department has picked up on these signals as well. I'd like to confirm your identity." First, they'll relay the balance to the victim. They'll relay some of the successful transactions on the account, thus building rapport with the victim. And now they'll say, "I wish to we want to authentic your identity. What I'm going to do -- and as part of the completion of the cancellation of the nefarious wire transfer, I'm going to send you a text message, just relay this onetime pin back to me and I'll go ahead and cancel this wire transfer for you." In this instance, the victim will relay this onetime pin and unknowingly actually enable that fraudster to conduct that wire transfer and complete it. And if the fraudsters [indiscernible], they'll also stay Unfortunately, that didn't work. Let's try this again." And they'll do this over and over until the victim realizes that they're being defrauded. Unfortunately, stories like this pop up on a weekly basis and impact people, I know, and family members of mine as well. And this is very difficult for those funds to be restored to the victim and become a burden for that financial institution. authID has introduced technology that will protect not only our customers but our customers' customers from this very damaging fraud instance by introducing biometric, by introducing context that makes the victim very aware of what's taking place and also introducing geolocation risk signals as part of the stack. Hopefully, it was helpful to go through some very practical examples of how fraudsters complete their X and how authID is able to stop these today. And with that, I'd like to turn it back over to Rhon.

Dale, thank you for the eye opening presentation. This is exactly why our customers are reaching out and talking to us and why we're able to set up meetings with so many customers. So this is exactly their challenges and their problems. Unfortunately, what we've shown you today can actually happen to any one of us on this call. And unless we bring in stronger authentication to the marketplace, it's going to continue to happen. So this is absolutely the reason why the world needs authID. I would like to turn it over to Tom Szoke, who will highlight our efforts to stay ahead of the market trends and the game changers in the industry.

Thank you, Rhon. During this past year, authID broke the speed barrier by introducing the fastest processing times in the industry. With the delivery results in 700 milliseconds or less for document verification and biometric authentication transactions is outperforming its competitors by a factor of 5 to 10 times. Delivering 700 milliseconds processing speed is a game changer in the industry. However, what makes it even more incredible is that during the subsecond time, authID is able to conduct an extensive series of fraud checks on IDs, detect presentation attacks and injection attacks for both facial and document images, detect the presence of deep fakes and perform a facial biometric match. This means that authID's customers can provide their users a frictionless user experience without having to compromise on security, and with an increased level of fraud protection. Next slide, please. authID has broken the speed barrier, and now our engineering teams are rolling out biometric accuracy, which is 10,000x greater than that with the National institute standards uses for benchmark testing. This game-changing accuracy of 1 to 1 billion means that there is one chance in one billion that an imposter face can match that of the legitimate user in the authID platform. This level of performance enables customers to trust authID and ensuring that the right users get the right access to the right accounts and that the transactions they perform are authenticated by the real account owners. Next slide, please. Delivering the fastest speeds and highest levels of accuracy are critical to customers. However, ensuring the privacy of their users biometric data is even more important. To accommodate this crucial requirement, authID has deployed technology, which eliminates the need to store biometric data anywhere. This revolutionary solution allows facial images to be converted into public private keys where only the public keys need to be stored, transforming biometric authentication into a cryptographic transaction with no biometric data associated with it. What further differentiates authID ID from other privacy-preserving solutions 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 essentially making the person not a device, the private key. Next slide, please. Finally, we are really excited to announce that during the second half of this year, authID will be introducing their digital identity interchange that is built in conformance with the accountable Digital Identity Association Global Standard using Web 3 technology and authID's public-private key biometric authentication. This next generation of decentralized reusable digital IDs allows for the secure frictionless exchange of identity information between enterprise customers without the need to centrally store any PII information. authID's digital identity interchange will enable enterprises to simplify their onboarding, account recovery and strong authentication processes. I will now turn it back over to our CEO, Rhon Daguro.

Thank you, Tom. Our game-changing biometric identity platform is why I'm excited about authID's business today and in the future. As you can see from these demos, today's digital economy is exposed to a highly sophisticated tax and require very advanced solutions that are also compliant to the regulations so that we can stop them. AuthID is highly differentiated in the industry where Tom spoke in detail about our innovations that get our customers excited. We are the fastest in the marketplace. We are the most accurate in the marketplace by leaps and bounds. We're the only ones who can deliver on biometrics without having to store any biometrics. And we will be pioneering the first standards for portable identity based on W3 standards in the marketplace. With the tremendous amount of excitement from our customers, driven by these innovations and the votes of confidence supported by yesterday's successful funding, authID will be spearheading the fight against identity fraud. Our biometric identity platform is a game changer with a superior speed, ease of use, accuracy and privacy. We look forward to advancing our positioning as thought leaders to our customers and remain confident in our execution of triple growth targets for bar bookings. 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 it back to Graham, who will moderate the questions.

Thank you, Rhon. To participate in the Q&A, you may type in your question using the Q&A icon in menu usually located at the bottom of the screen. To join our call and verbally ask a question in person, tap the raise your hand icon in the Zoom menu, or just mention it in the Q&A. Whilst we're waiting for any questions that come in, Rhon, perhaps you can speak a little more to what your plans are for the next year in terms of the -- now that we have the funding, how you expect to use that funding to build the business over the next year?

Well, as laid out in my strategy before we wanted to acquire customers in a rather rapid fashion that met our use cases directly. We also are working with very strategic large customers on solutions and those types of deals will take some time. So this funding allows us to invest in that as well as give us the runway to be able to realize those efforts, which for us is hopefully here in the near term. We want to expand our sales and commercial organization as we're building pipeline at a very rapid pace that I had shared earlier in previous earnings calls. And so with that continued rapid growth in building pipeline, we're going to need the staff to be able to close those opportunities as well as growing our customer success group to be able to take those customers live, which then obviously will lead to revenue recognition for the business. So it's a very critical piece to our journey, and we're grateful that it occurred.

Great. We've had a question from the stockholders asking about the new game-changing technology that Tom described. I understand it's early days, but what sort of feedback are you getting initially from customers when we discuss this?

Well, as I described, we've been approaching our customers with the very first innovations of speed. The 700 milliseconds was absolutely game changer, and that really accelerated authID onto the TV, global market platform as a differentiated solution. And just that innovation alone really propelled us into having a relationship with our strategic customers. Secondarily, as we introduce these innovations, they tell us the things that they're concerned about. And so we heard about these concerns last year, a long time ago, -- and we thought about this and how we would address it in our road map and again, being focused and making sure that we can service our clients to the exact problems they worry about. This is just a result of that. And so this game changer technology has actually been derived from the needs that these customers have expressed to us that they need to address. They need absolute accuracy. And so with the one billion to one announcement of our -- 1 to 1 billion false match rate on our accuracy, that's bare nothing on the planet can even come close to that. And then, of course, addressing the storage of biometrics and the possible compliance and liability related to biometrics, and you'll see that on a state-by-state basis where people are trying to address how we're going to keep people's privacy in place, we've addressed that as well. And so we're just listening to our customers on what they need. We know what the marketplace can service and we know the market can't do one in one billion accuracy and they can't definitely do the biometric piece using biometrics, also having to store biometrics. And then lastly, the world is moving to W3. People talk about it, but they're not doing anything about it, authID is. And so we're going to be really excited to be introduce our platform on the portable identity standard, introducing following the W3 standards.

Thank you. [Operator Instructions] Rhon, one more question, again, talking about this new technology. Are there particular use cases that you feel sort of lend itself or for which this technology is most suitable? Or is it just really for all presential use cases?

It's the same use cases we've always describe, onboarding, the authentication of the identity and the account recovery. So those are the 3 general use cases that all authentication technologies you're trying to solve. But the problem is all the past where existing technology today is still letting people through. So there's this balance of a good person versus a bad person and the company has to choose a solution that would give them the right balance or the best balance, but nobody has been able to be definitive on these particular use cases, which means the most accurate onboarding, the deep fakes are causing big problems for that. So obviously, our technology addresses that. The second one is logging in, coming back and having a one to one billion false match rate is absolutely going to give our customers and clients the confidence to know that they're rolling out a solution that's going to be great for their clients, but also great for their business. And then lastly, the piece around the biometrics and the compliance related to storing biometrics, all companies need to conform and want to conform to all regulations that are here or regulations that will be coming. And the #1 thing to protect is the customers' privacy. And so thus we're addressing that. So there aren't many new use cases, Graham, but essentially, it is absolutely definitively addressing the use cases that our customers want to solve in the most accurate way possible.

Okay. One more question. You mentioned the W3 standards. For those of us who are not so familiar, can you expand a little on what that means and what the implications are for the industry?

Tom, why don't you take that?

Absolutely. So yes, we mentioned the W3 standards and what our digital identity is based upon is what is called the Accountable Digital Identity Association standard. It was driven from the original standard at FIDO, which is Fast Identity Online was built from. It's the expansion of that to go from authentication into verification, identity verification. So the onboarding piece, how do you share onboarded credentials across the globe between enterprises on an open standard basis. This is ADIA Association.org. That is the foundation of the standard we built on and it's used as W3 or Web 3 technology to enable it.

Okay. Rhon, was there anything you wanted to add to that?

No, we're just super excited that we're pioneering this as the world adopted password list and really stood behind the FIDO Alliance. It's really great that the founders of the FIDO started this association to standardize on the identity definition of bidding an identity to a biometric, which, as everybody knows, authID, we've been touting this for the last 5 years. finding an identity to a biometric is the most critical foundational piece, and it's great that the standard was created, and it's great that authID to be pioneering that standard into the marketplace.

Well, that's all the questions that we have. So Rhon, I'll turn it back to you to wrap up the call.

All right. We greatly appreciate everybody's time. I do want to say, again, I want to thank our investors for their continued support in authID's efforts to achieve our greatest potential. I assure you that we continue to be focused on our mission to help today's digital enterprises know who's behind the device. Have a wonderful day.

That ends the call. Thank you very much, everybody.