T Stamp Inc. 10-Q Summary
Business Context and Reporting Period
T Stamp Inc., doing business as Trust Stamp, develops artificial intelligence, biometric, cryptographic and identity-authentication software for enterprise, government and peer-to-peer markets. The filing covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Performance and Position
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net revenue | $573,676 | $458,633 | +25.1% |
| Gross profit | $279,078 | $241,675 | +15.5% |
| Gross margin | 48.6% | 52.7% | Down 4.1 percentage points |
| Operating loss | $(2,849,258) | $(2,579,750) | Loss increased 10.5% |
| Net loss attributable to T Stamp | $(2,678,569) | $(2,547,450) | Loss increased 5.1% |
| Basic and diluted loss per share | $(0.26) | $(0.50) | Improved, partly due to higher share count |
| Adjusted EBITDA loss | $(2,366,571) | $(2,282,448) | Loss increased 3.7% |
| Net cash used in operating activities | $(2,157,635) | $(154,578) | Higher cash burn |
Calculated operating and net margins were approximately negative 496% and negative 467%, respectively, in Q1 2024. Revenue comprised $487,426 of professional services and $86,250 of license fees. Revenue concentration remained high: approximately 94.6% came from three customers, including an S&P 500 bank, Mastercard and Triton.
At March 31, 2024, cash and cash equivalents were $816,692, down from $3.14 million at December 31, 2023. Current assets were $2.42 million versus current liabilities of $2.78 million, resulting in negative working capital of approximately $362,000. Notes payable, including accrued interest, were $946,395; warrant liabilities were $254,076; and operating lease liabilities totaled $154,015. The accumulated deficit was $53.53 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased $115,043, primarily reflecting greater adoption of the Orchestration Layer by an S&P 500 bank and other customers.
- Orchestration Layer revenue increased to approximately $297,000 from $58,000. The company reported 51 enterprise customers on the platform, including 48 financial institutions onboarded through FIS.
- Cost of services increased 35.8% to $294,598, reducing gross margin.
- Research and development expense declined 28.6% to $451,842 as the company shifted work from outsourced developers to internal personnel.
- Selling, general and administrative expense increased 26.5% to $2.49 million, driven primarily by compensation, stock-based awards, sales resources and bringing technical positions in-house. Stock-based compensation increased to $297,886 from $59,574.
- Operating cash outflow increased substantially because of the larger net loss and working-capital timing, although deferred revenue increased $257,450 and provided an operating cash benefit.
- The weighted-average share count increased to 10.1 million from 5.0 million. The company issued shares upon exercise of warrants and vested employee awards.
Guidance, Outlook, Risks and Unusual Items
- Management expects user-based Mastercard revenue to begin in 2024 and grow thereafter, but no quantified revenue guidance was provided.
- The company stated that significant revenue negotiations were well advanced but not sufficiently developed to be included in the going-concern assessment.
- Management expects significant revenue from new FIS customers primarily in late 2024 because financial institutions require time to test, implement and roll out the technology.
- The company disclosed substantial doubt about its ability to continue as a going concern. It has not generated profits, expects to require additional equity or debt financing within six months, and stated that it is not currently generating enough cash to meet the next twelve months of requirements.
- After quarter-end, the company completed an April 2024 financing consisting of 499,990 shares and pre-funded warrants for 1,500,010 shares, generating gross proceeds of $1.936 million and net proceeds of $1.715 million. Additional warrants for 3.6 million shares were issued. As of May 14, 2024, those warrants had not been exercised.
- The April financing includes a right of participation allowing the selling stockholder to participate in certain future financings for 18 months, potentially increasing future dilution.
- Other income included an approximately $187,000 gain from settling a mobile hardware obligation for less than the amount outstanding. The related financial liability was zero at March 31, 2024.
- The company reported no pending or threatened litigation and no material changes to internal control over financial reporting. Management concluded disclosure controls and internal controls were effective as of March 31, 2024.
- Potential dilution was significant: 8.51 million options, restricted stock units, grants and warrants were excluded from diluted loss per share because they were anti-dilutive.
Facts Investors Should Verify
- Whether the April financing and $1.715 million of net proceeds provide sufficient liquidity, given the Q1 operating cash burn of $2.16 million.
- The timing and probability of expected Mastercard user-based revenue and meaningful revenue from the 48 FIS-onboarded financial institutions.
- Customer concentration, particularly the company’s dependence on the S&P 500 bank, Mastercard and other major customers.
- The full dilution impact of outstanding warrants, including the April financing warrants and the 3.6 million previously issued warrants.
- Whether revenue growth can outpace rising selling, general and administrative expenses and restore gross margins.
- The terms, maturity and repayment requirements of the $946,395 Malta-related notes payable.
- Management’s financing plans and the company’s ability to resolve the disclosed going-concern uncertainty.