authID Inc. (AUID) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for your participation in today's conference call to discuss authID Fourth Quarter and Full Year 2024 Financial Results. I would now like to turn the call over to authID General Counsel, Graham Arad. Graham, please go ahead.

Thank you, operator. Greetings and good afternoon. This is Graham Arad, General Counsel at authID. Welcome to the authID fourth quarter and full year 2024 earnings conference call. As a reminder, this conference is being recorded. With me on today's call are our CEO, Rhon Daguro; our CFO, Ed Sellitto; and our Founder and CTO, Thomas Szoke. By now, you should have access to today's press release announcing our fiscal year 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. This information is not calculated in accordance with GAAP and may be calculated differently from other companies similarly titled non-GAAP information. Quantitative reconciliation of our non-GAAP adjusted EBITDA information to the most directly comparable GAAP financial information appears 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-K and other filings, which are made available at www.sec.gov. I'd now like to introduce our CEO, Rhon Daguro.

Thank you, Graham, and thank you all for joining us today to discuss our fourth quarter and full year 2024 results. AuthID is a biometric authentication company focused on knowing who's behind the device. While artificial intelligence has made incredible strides across many use cases within the last 2 years, it has also brought advances in deepfake capabilities, which make it increasingly difficult to verify a person's identity. I want to start off the call by sharing the statement which captures the role authID plays in today's world. Artificial intelligence is producing the most realistic inauthentic content the world has ever seen. The only way to allow companies to ensure authenticity is to give them the capability to trust the physical presence of an individual human being. This is what authID delivers. I'm very proud of our 2024 growth, not only across our financial metrics, but also in the foundation we have built to be a dominant player in this rapidly expanding market. When I began my tenure as CEO, authID created a product that I believe had the potential to be a winner, but the team was down to bare minimum, the company was in financial strain. My mandate was to rebuild authID to deliver strong financial and operational results and rebuild a company that lacked market credibility. So in 18 months ago, we set ambitious goals not to just turn the business around, but to quickly grow by assembling a world class team, positioning the technology to be market leading in every category of biometric authentication. I am proud to say that we have quickly made great progress in positioning for aggressive growth, and our business has improved across all key metrics. We built a proven go-to-market plan to execute a high growth year-over-year strategy, where we centered our entire organization around 300 core accounts divided to 3 categories: fast high growth companies; large enterprise companies; and channel partners. We calibrated our sales pipeline to the rate of $9 million a quarter and we closed many fast customers as we could, while nurturing large accounts for our 2025 pipeline. To this end, we assembled a team of identity domain experts that large companies can trust and feel confident to do business with. We also had to refine our software to be enterprise ready to service large brand name accounts. We did it all in just 18 months' time, and here's what authID achieved in 2024. Let's start with booked ARR, which is the total of committed ARR plus estimated usage above committed ARR, 18 months from signing the contract. We set out to achieve a 5-year T2D3 growth target, which is triple growth year 1, triple growth year 2 and double growth in years 3, 4 and 5 to get to $100 million in ARR. For the first year, we originally targeted $3 million in booked ARR over 12 months, but we achieved that target within 6 months, $3 million representing more than 3x in booked ARR from previous years. For 2024, we aim for our second 3x growth year, targeting $9 million. And I'm very happy to report that we achieved that 3x goal of $9 million this year. We also improved our remaining performance obligation or RPO by 3.5x from $4 million to over $14 million. To reiterate, we have performed at least 3x in booked ARR and RPO. Despite our size, we have positioned ourselves to partner with very large customers, some of whom are in the late stages of our sales cycle. We expect to close multiple Fortune 500 and multinational customers in 2025. We have increased our pipeline generation activity with an open pipeline of over 3x the $18 million in bookings we are targeting. We are adding over $20 million in bookings pipeline per quarter, which we will continue to ramp up. And we are also working diligently to bring our new customers live on the platform and convert our bookings to revenue. Moving to our fourth quarter highlights. AuthID closed the largest deal in the company's history in Q4, a $10 million contract over 3 years with our next generation AI partner in India. We also expanded our relationship with EinStrong to enable larger initiative to provide basic income payments to individuals and families in need around the world. This represents a satisfied customer who increased their usage of authID, a land and expand model we are working to replicate with more customers. We also added several new customers and partners in Q4, including: TurboCheck to help verify identity of job candidates; Imperial Technologies to support onboarding for new telecom customers; a fintech for financing major recreational purposes; Berify to power reusable identities for onboarding and authenticating users across their portfolio of brands; and Salus to report -- to support the automated underwriting of consumer microloans. We continue to build our partner ecosystem and seamlessly work with other platforms in order to leverage mutual market opportunities. These partnerships help us reach their existing customer bases as well as new verticals. In Q4, we announced a partnership with Zendesk to enable their customers to seamlessly access authID through their customer support software and to better address call center use cases. We announced our membership in the Accountable Digital Identity Association, or ADIA, which is a critical step as we work to advance the adoption of reusable digital identities and collaborate closely in the growth of ADIA's standardized framework and ecosystem, which is rooted in biometrics. The ADIA was founded by Ramesh Kesanupalli, who also founded the FIDO Alliance, the most successful standards body solving for passwords. Our mutual goal is to validate every identity in an interoperable format controlled through biometrics. AuthID is working with a major biometric hardware provider to showcase our reusable identity solution by deploying the first identity exchange between the United States and Japan. Our plan is to demonstrate this identity exchange between 2 different entities across 2 different countries, all based on the ADIA standard. This has never been done before. This addresses the challenges enterprises face in managing multiple identities for their global employee and contractor workforces. In addition, having a single trusted identity bound to a person's biometrics and reusable across business units and geographical territories reduces the cost and time and unnecessary friction of onboarding individuals multiple times. Enterprises we talk to are excited about the release of the capability for reusable identities. On the technology side, in our 4.0 release, we offer PrivacyKey, which represents a quantum leap forward in biometric authentication, providing frictionless security while maintaining the highest standards of data privacy and protection. As we recently highlighted in a press release, the Prism Project conducted an independent analysis of authID's approach to privacy and compliance for its biometric authentication, classifying authID as a Luminary, their highest level of distinction for our leading-edge platform. I'm proud of the team's efforts and accomplishments in 2024. As I mentioned earlier, the rise of artificial intelligence is challenging identity verification solutions to content with the most sophisticated fraud attacks that leverage deepfakes, public available AI models, and camera injection software. At authID, we are meeting this rising AI threat by combining the sophistication of biometric liveness and injection attack detection, while also delivering speed, accuracy and privacy to allow broad adoption for all organizations. The market has told us that there are 3 key pillars for adoption of biometric solutions and our foundation for differentiating authID in the market, starting with speed. Instead of traditional 7 to 10 seconds for our other vendors, authID can process new identities in a blazing 700 milliseconds for the best possible user experience or even faster at 25 milliseconds for simple selfie biometric authentication. Next is accuracy, which we measure by false match rate, meaning the probability of matching a face to the wrong user account. No other vendor matches our 1 to 1 billion false match rate, which leads the market by at least 4x. More importantly, even with our speed, there is no compromise to accuracy. The third key to adoption is privacy and compliance. Stringent legislation already exists in the form of CCPA, BIPA, COBE and GDPR, with new laws being enacted globally all the time. The potential liability for compliance failures around biometric data creates a tremendous amount of hesitation around the use of biometrics. With the introduction of PrivacyKey, we are the first to offer biometric authentication without needing to store any biometrics. By leveraging public key technology, the baseline for all enterprise encryption and crypto, this helps authID customers implement biometrics with built in compliance. We also achieved an industry first with the ability to revoke biometrics to comply with corporate password rotation policies. It's a challenge in biometrics without requiring the person to effectively get a new face. This capability unlocks critical enterprise use cases where revocability is necessary in any company's IT compliance policy. This commitment to privacy and the market leading ability to deliver it further helps our customers eliminate the biggest hurdle in adoption, the fear of biometric data being stolen. Identity verification technology is critical to corporations and governments. As AI continues to advance, authID offers a critical solution for our customers while also eliminating barriers to biometric adoption. Customers choose us because we fulfill the requirements of speed, accuracy, and data privacy. Before I turn to Ed to cover the financials, Dale will show you a 3-minute demo so you can see for yourselves how we help our customers combat AI generated fraud. [Presentation]

Thanks, Dale. We are very excited about our technology and our customers are equally excited. I'd like to pass the call to Ed Sellitto, our CFO.

Thank you, Rhon, and thank you all for joining us today. Looking at Slide 9, total revenue for the quarter was approximately $0.2 million compared to $0.07 million a year ago. For the year, total revenue was $0.89 million compared with $0.19 million a year ago and at the top of our expected range of $800,000 to $900,000. Operating expenses for Q4 were $4.9 million compared with $3.3 million last year. For the full year, operating expenses were $15.6 million compared with $10.9 million in 2023. The 2024 increase is primarily due to a one-time noncash expense reversal in Q1 2023 of $3.4 million of certain stock-based compensation related to employee terminations, which was not repeated in 2024, as well as reinvestment in employees and contractors following the Q1 2023 restructuring. Net loss from continuing operations for the quarter was $4.6 million of which noncash charges were $0.6 million compared with a net loss of $3.2 million a year ago, of which noncash charges were $0.5 million. For the full year, net loss from continuing operations was $14.3 million including $2.8 million in noncash charges. This compares to a net loss of $19.6 million for the same period last year, which included $10.9 million in noncash and one-time severance charges, with approximately $7.5 million related to the exchange of convertible notes for common stock in 2023. Net loss per share for the quarter was $0.49 compared with $0.41 a year ago. For the full year, net loss per share improved to $1.40 compared with $3.19 last year. Next, let's turn to RPO on Slide 10. Remaining performance obligation, or RPO, provides a measure of the minimum revenue expected to be recognized from our signed contracts based on our customers' contractual commitments. As of December 31, 2024, our total RPO was $14.26 million an increase of $10.43 million over the prior quarter due to the impact of the large $10 million contract secured in the fourth quarter. This compares favorably with the RPO at the same period last year, which was approximately $4 million and is above our expectation of $13 million to $14 million. We expect to recognize the full RPO of $14.26 million over the entire life of the contracts, which are typically signed with a 3-year term. On to our non-GAAP results on Slide 11. Adjusted EBITDA loss was $4.1 million for Q4 compared with a $2.7 million loss for the same period last year. For the full year period, adjusted EBITDA loss was $11.9 million compared with an $8.7 million loss for the same period last year. The increase in EBITDA loss is primarily due to reinvestment in employees and contractors following the Q1 2023 restructuring. We also monitor and report on ARR, or annual recurring revenue, which is defined as the amount of recurring revenue earned during the last 3 months of the relevant period as determined in accordance with GAAP, multiplied by 4. The amount of ARR as of Q4 is $0.8 million compared to $1.0 million of ARR as of Q3 and $0.3 million of ARR for the same period last year. The temporary quarter-over-quarter decrease was driven by the accounting impact of the modification of a customer contract due to a delayed go live time line, as we previously discussed in Q3. Turning to BARR, 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. The gross amount of BARR signed in the fourth quarter of 2024 was $7.13 million up from $1.67 million of gross BARR a year ago. Our Q4 BARR was driven by the large deal with our next generation AI partner in India. For the full year, 2024 gross BARR was $9.01 million up from $2.94 million in 2023 and in line with our expectation. Net BARR, which reflects the deduction in BARR from contracts previously included in reported BARR that were subject to attrition during the quarter, was approximately $6.86 million compared with $1.67 million of net BARR signed in the fourth quarter of 2023. 2024 net BARR was $7.38 million compared with $2.94 million in 2023. The reduction from gross to net BARR in 2024 is due to the impact from certain customers that have delayed their go lives and expected usage ramp. As previously explained during our quarterly earnings call, BARR comprises 2 components, which we refer to as CARR and UAC. The Q4 2024 CARR or committed annual recurring revenue represents $3.68 million with 2024 full year CARR representing $4.68 million both approximately 52% of reported BARR. UAC, or estimated usage above commitment, is an estimate of annual customer usage that will exceed contractual commitments. The UAC comprises the remaining $3.45 million of Q4 BARR and $4.33 million of full year 2024 BARR, both approximately 48% of reported BARR. Turning to our revenue growth stages on Slide 12. I'll take a moment now to summarize our progress through the following revenue growth stages. The first milestone we use to monitor our growth is bookings, as measured by BARR. In 2024, we realized a total gross BARR of $9.01 million approximately a 3x increase over the same period in 2023. The next milestone is our remaining performance obligation, or RPO. As I detailed earlier, as of the end of the year, we've secured approximately $14.3 million in RPO, a $10.2 million increase over the RPO secured by the end of 2023. Our third milestone is revenue recognized in accordance with GAAP. Our 2024 revenue is $0.89 million grew approximately $0.7 million over the same period in 2023. And as we've called out in prior earnings calls, we will increase our focus in monitoring our customer retention and expansion in 2025, as our customer contracts mature. We'll optimize our sales and support efforts to deepen our customer relationships and increase the value added by our services through renewals, usage growth, and customer expansions from additional use cases and product upsells. With that, operator, we would now like to open up for questions.

[Operator Instructions] One moment please for our first question. It comes from the line of Ricky Solomon with Wilmot.

Rhon, in your sales conversations, what are the things that customers are looking at? And why are they choosing authID over other options?

Thanks, Ricky. Thanks for the question. So what's really exciting with the last release of the software, we've been actually been placed in a lot of these large enterprise organizations' POCs. So in these POCs, we are having use cases around new customer onboarding, workforce authentication, time and attendance, so people showing up to work and they don't want to log in, they just want to scan their face. Real big issues around downloading sensitive documents like W-2s, tax forms. The very big one right now that's really taking a lot by storm is this account takeover, where people are coming in and they're impersonating somebody else, and they're kind of moving stuff around personal data and money. Wired transfer is a big use case. Personal information changes, high risk transactions, even stuff like deleting databases. These are very critical things that they need really strong authentication. Single identity source of truth, so making sure that there's no duplicate Ricky Solomons inside anybody's identity database, so making sure everybody's unique. And then more recently, replication of biometrics. As these companies are actually looking to solve these use cases and looking at biometric providers, really, they're centering their kind of like scorecard around kind of like 3 major pillars. First one, how fast can we do the biometric, so speed? Second one is how accurate is it? Because right now, the NIST standard is only 1 in 100,000 false match rate, where we're at 1 in 1 billion. And then the last piece is, do I get in trouble for deploying biometrics because I'm not complying to law? And so we had this story around a Chief Compliance Officer saying, I'd love to use biometrics, but I just simply can't because I'm not a biometric expert, and I don't want to subject myself to any liability. So we basically have to hit all 3 of these categories, which is speed, accuracy, and privacy. So it's those scorecard items against those use cases is what our customers are looking at with us.

And if you look at, let's say, PrivacyKey and ADIA coming all together, I mean, how are customers looking at that? Like, could we be looking at something where a solution based on ADIA can be instead of like a business use cases you laid out like consumer facing where businesses trust one identification source for, say, if I log on to my Chase app or if I log on to my Fidelity app? Or like how do you see that going forward?

Thank you. I love that question because there's actually 2 really big parts around ADIA. The first big part around ADIA is exactly how you described. Can an organization like Wells Fargo trust an identity that's been banking with Bank of America or trust an identity that's been banking with Chase? And so how does one bank be able to leverage the history and the activity and the longevity of that identity's behavior at a different institution as a form of knowing that that's Ricky Solomon, as opposed to just doing a simple KYC check, which is what's your favorite color, what year car did you drive, or what was your address 10 years ago. They would rather trust another institution who has had history with you as opposed to just answering KYC questions. So that reusability has actually been requested of us. And in fact, many institutions have been trying to produce this. Name your favorite credit bureau, they're going to have this thing called their name plus the word ID right behind it. And they've been trying to -- a lot of organizations have been trying to create a unified ID. The problem is they were never built on a standard. So what ADIA does is create that standard that everybody can use. The beauty of that standard, it was founded by Ramesh Kesanupalli, who founded the FIDO Alliance. So that means that all 84 members of the FIDO Alliance, including the major top 5 enterprise tech organizations, they're all part of it. And the hope and what we're starting to see is people are adopting that standard. So one, you got to have an adoption. Two, you have to have a standard that everybody can follow. And then 3, can you actually demonstrate it? So that's use case number one is company to company trust. The second more exciting use case is what we're seeing right now is seeing an organization who has multiple business entities that they acquired over a period of time, but yet they did not integrate the business. I'll give you an example because this is my favorite company, Disney. Disney owns many brands, ESPN all the way down to Marvel, all the way down to Hulu, all the way down to Pixar. And if you can imagine, they're not going to blend all of those companies together and have them all work in a unified system or the same payroll system or the same identity system. They're actually each operating entity, but they're still part of the same family. So how does one manage an identity that where they'll onboard into Hulu, but they still need to log into Pixar or they need to log into Marvel or they need to log into ESPN because they're also part of the same parent company. And so that same ADIA solution can work within an organization who has many entities, or it can help us work with independent entities that have nothing to do without each other, but they could still trust that identity if they follow the standard. So that's the big opportunity. That's the holy grail for actually eradicating fraud completely. And authID has been really focused on delivering that through ADIA because what we love about the standard is because this standard is rooted all in biometrics. And so we've been very active in that forefront. And then obviously, PrivacyKey allows us and allows every organization that participates in ADIA to be fully, fully compliant around storage of biometrics and making sure that nobody's going to get in trouble for keeping people's biometrics stored. And again, we don't store it. So that helps with enterprises adopting the standard.

One more question, I'll let someone else ask a question. So you mentioned closing Fortune -- I forget the language in the press release, but large enterprises this year. Like what gives you confidence that that's actually going to happen in the near future here?

Yes. Thanks for the question. And that's what I'm super, super excited about because 2024, we did -- we made a bet early in the year saying, okay, what will allow large Fortune 500 companies adopt biometrics? And so that's why I was very specific saying, hey, what are the blockers? One was speed. We got that nailed. Second one was accuracy. We got that one nailed. Privacy and compliance was the third one, and we got that nailed. And it took us a little longer in 2024 to do that. So we had set out back in April to, say, let's go solve this. We were trying to go into POCs with our customers and partners in the summer, but we're still delayed in building the tech. We finalized the tech. We got it into what I call MVP status, then we got it into beta, then we got the beta program. So we kind of were a little bit later in the year to deliver it, but now that we're in POCs with that technology, the results are just awesome right now. So we're in these very late stages of these sales cycles with a number of these major enterprises to date. It's only a matter of time before we sign them. The response to this -- to the outreach in regards to the performance and the privacy piece has just been phenomenal. So just super excited. I mean, privacy and compliance alone represent the biggest hurdles for these Fortune 500 accounts in terms of facing -- in terms of adopting biometrics, and we've basically gotten rid of every single one of those. So -- and then we're starting to see that. Again, we're in late stages of those particular deals. I was hoping that we would get a couple more right before this announcement, but we're very excited that that we'll be able to close those this year.

Rhon, we've actually had a couple of questions on the same subject from listeners on the webcast asking about these major contracts. And can you give a little bit more color about how long it takes to sign such a contract and then the sort of the time to bring them live and revenue generating? And also, how long we might expect to see the length of those contracts?

Well, the typical contract terms that we do with anything in cybersecurity and it's also represented here in authID is that usually the contracts are 2 to 3 years. That's the typical time frame for how long the contracts will hold and what we sign them up for. And also, we don't want to sign them up for too long because it also limits authID's ability to upsell and cross sell. We do give discounts early on, obviously, to acquire customers. We don't want to extend the discounts all the way through to the point where our cost of goods go up and go down. So we want to have flexibility for what's right for the business and what's right for the customer at that time. So that's typically 2 to 3 years. In terms of the large enterprise deals, if you think about like, just the example, I just gave you with Disney, where there could be many multiple lines of businesses, and so some of these large enterprises have this thing called a core enterprise service, where they will standardize the security program across all the various entities, or each division will have their own core security enterprises, and then they have to individually figure out how to work with each other. So when we come into an enterprise, our goal is to capture the entire, in the entire enterprise space. But obviously, we want to get in there with one use case. And typically, what happens when you're in a large enterprise, they say, hey, we got to stop buying one vendor for each thing. So anytime you have a vendor that does something very special or very unique, you must run it by the cybersecurity committee and get approval and also share it because we don't want to buy 13 different technologies. We don't want to have 13 different vendor contracts. We don't have 13 different account teams. We want to be able to standardize on the best and make sure there's best practices across. So for example, we went into this very large payroll provider on the planet, largest payroll provider on the planet. They brought us into a particular use case around downloading sensitive documents. And then when they shared it internally, another group that's been looking at biometrics had no idea that that was happening. But there was another group that was looking at biometrics and said, hey, well, what is that technology you're looking at? Can we speak to them? And then all of sudden, they introduced this to them, and then we're in a different POC. And that keeps going and it keeps going. And then sometimes their evaluations will go for 3 months. Sometimes they'll go for 1 month. In our case, because biometrics is new, it's got to go through several committees for approval. But also at the same time, it's exposing authID to all the various use cases that they have, and it's allowing us to put together, we think, a very large deal. So we can go from a regional use case to now a multistate use case to now a full country use case and now even a global use case. And so it takes time, and we've built that into the deal cycle. We say anywhere between 6 to 9 months. We're right around that time frame, 6 to 9 months on some of these deals that were in late stage. We did have a little delay when we were releasing the privacy technology, but those weren't lost deals. We just had a little push in terms of a delay in delivering. But that's kind of like the [ D&A ] of these large deals. And it's no different than when I worked at Oracle or any other of these large enterprises where we're still trying to take down big cybersecurity initiatives.

[Operator Instructions]

[Operator Instructions] Rhon, we have another question. Can you just talk a little bit more about the progress we're making with channel partners and how you see that moving forward in the future?

Yes. Thanks for your question. Channel partners for us is just super special. There's 2 types of channel partners that we look at. One is the OEM partner who says, hey, listen, we know biometrics are going to be used. We are lacking biometrics in our platform. We're not going to go and buy one. I'm sorry, we're not going go buy a company and we're not going to go build one. So the best thing to do is partner with the best in the marketplace, integrate it into our platform and offer it to all our customers. We love those deals because it doesn't require my sales team to go after them. It's built into their platform. They have their own sales team to go after them, and then they can go and sell to their own customers. So for us, we love those opportunities and we have spun up several of those OEM opportunities, including the India announcement that we just made. And we're about to sign up a couple more. So very excited about that OEM channel partner opportunity. On the other side of the partner channel is those that want to resell our technology and they refer customers and clients. So we've actually had several partners already start to turn in more of their clients into us, referring their clients into us, saying, hey, this client wants to use the authID technology. They go ahead and they set us up with their customer. They introduce us. Even this morning, we just had a phenomenal one where partner introduced us to a client. We got warmed introed because the client already had vetted the partner. The partner trusts authID, so it was a very warm introduction. So the channel partnership business has been going very well and I think it's going to help lead to some of the larger big deals that we've been talking about.

That seems to be all the questions we have right now, so perhaps you'd like to wrap it up.

Fantastic. Well, thank you everyone for joining us. We'd like to thank you all for listening today, listening to the call. Look forward to speaking with you all when we report our first quarter results for 2025. And again, thank you for joining us. Have a nice day.

Thank you. And ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.