T Stamp Inc. — Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
T Stamp Inc., doing business as Trust Stamp, develops artificial-intelligence identity authentication, biometric tokenization, fraud prevention, KYC/AML, and digital identity software. This unaudited Form 10-Q covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021. The company is a smaller reporting company and emerging growth company; its Class A common stock trades on Nasdaq under “IDAI.”
Key Financial Metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net revenue | $2.821 million | $0.532 million | Up 430.0% |
| Cost of services | $0.694 million | $0.257 million | Up 169.6% |
| Gross profit | $2.127 million | $0.275 million | Up 673.8% |
| Gross margin | 75.4% | 51.6% | Up approximately 23.8 percentage points |
| Operating loss | $1.641 million | $1.936 million | Improved $0.295 million |
| Net loss attributable to T Stamp | $1.692 million | $2.032 million | Improved $0.340 million |
| Adjusted EBITDA loss | $1.131 million | $1.614 million | Improved 29.9% |
| Basic and diluted loss per share | $0.07 loss | $0.11 loss | Improved |
| Operating cash flow | $1.141 million use | $2.132 million use | Use declined 46.5% |
| Capital expenditures and software development | $0.245 million use | $0.234 million use | Broadly stable |
Revenue was concentrated in professional services of $2.759 million and license fees of $62,500. Q1 revenue included approximately $2.24 million from U.S. Immigration and Customs Enforcement, $276,000 from an S&P 500 bank, $177,000 from Mastercard, and $128,000 from other customers. Approximately 98% of revenue came from four customers.
Financial Position, Debt, and Liquidity
- Cash and cash equivalents were $5.836 million at March 31, 2022, compared with $3.476 million at December 31, 2021.
- Current assets were $8.091 million and current liabilities were $2.465 million, producing a reported current ratio of approximately 3.28.
- Total liabilities were $3.637 million, including $838,000 of non-current non-convertible notes payable and accrued interest, primarily related to Maltese government funding.
- The company had an accumulated deficit of $28.900 million and remained unprofitable.
- Cash increased principally from $3.696 million of financing inflows, including $3.384 million from warrant exercises, $53,000 from option exercises, and equity offering proceeds. These inflows offset $1.141 million of operating cash use and $245,000 of investing cash use.
- Management stated that human-resource costs are expected to be approximately $750,000 per month over the next twelve months.
- Management concluded that available liquidity and capital raises should support planned operations for twelve months from issuance of the financial statements, but continued operations depend on revenue growth and/or additional financing.
Material Changes Versus the Prior Comparable Period
- Revenue increased $2.289 million, primarily because of the ICE contract and new or expanded statements of work with existing customers.
- Cost of services increased $437,000, with ICE-related costs representing approximately 65.6% of total cost of services.
- Research and development expense declined $261,000 as the company shifted work from third-party developers to internal teams, although capitalized internal-use software costs increased to $207,000 from $98,000.
- Selling, general, and administrative expense increased $1.787 million to $3.121 million. Drivers included headcount growth, $414,000 of sales commissions, $585,000 of legal and professional fees, Nasdaq listing-related costs, and increased travel.
- Global headcount increased from 70 to 100 team members. Trust Stamp Malta increased from 29 to 38 full-time equivalents, and the Rwanda research and development center had 12 full-time equivalents.
- Shares outstanding increased to 23.247 million from 20.475 million at December 31, 2021, primarily due to warrant, option, and other equity issuances.
- The company completed additional Regulation CF, Regulation D, and Regulation S fundraising activity and reported $3.70 million of financing cash inflows during the quarter.
Guidance, Outlook, Risks, and Unusual Items
- ICE contract contingency: A March 2022 modification increased the ICE contract award from $3.921 million to $7.176 million and extended the delivery period to September 26, 2022. Effective April 15, 2022, new legislation required congressional notification for certain ICE pilot or demonstration contracts. The parties implemented an up-to-90-day cessation of performance while ICE seeks the required notification. The continuation, timing, and full realization of the modified contract remain uncertain.
- Customer concentration: The loss, reduction, or delay of work from major customers could materially affect results. One customer represented 63% of accounts receivable at March 31, 2022, while two other customers represented 34% in aggregate.
- Going concern: The company disclosed recurring losses, operating cash outflows, and a substantial accumulated deficit. It has not yet generated profits and remains dependent on revenue growth and financing.
- Operating leverage: Management expects internal development hiring to reduce per-hour development costs versus contractors, but the company continues to incur substantial personnel, sales, and infrastructure costs.
- Equity dilution: Approximately 8.999 million potentially dilutive options, restricted stock units, grants, and warrants were excluded from diluted loss-per-share calculations because they were anti-dilutive.
- Internal controls: Management concluded disclosure controls were effective at a reasonable assurance level; however, the independent auditor identified material weaknesses related to stock-based award calculations and the financial reporting close process. No material remediation changes were reported during the quarter.
- Other unusual items: The company recorded $287,786 of stock-based compensation, a $40,588 favorable change in warrant liability fair value, and $94,513 of other expense, primarily foreign-exchange losses.
- The company reported no material pending litigation and no material impairment charges to goodwill, internal-use software, property and equipment, or intangible assets.
Important Facts for Investors to Verify
- Whether ICE obtains the required congressional notification and whether the modified $7.176 million contract resumes without further reduction or termination.
- The sustainability and collectability of Q1 revenue, particularly the $2.24 million recognized from ICE and the concentration among a small number of customers.
- Whether cash reserves and existing customer revenue can cover the approximately $750,000 monthly human-resource cost expectation while the company remains loss-making.
- The extent of future equity dilution from outstanding warrants, options, restricted stock units, and additional capital raises.
- Progress in remediating the material weaknesses in stock-based compensation accounting and the financial reporting close process.
- The recoverability of capitalized internal-use software and other intangible assets, which totaled approximately $1.452 million net at March 31, 2022.
- Potential changes in revenue, margins, and cash flow after the temporary ICE performance cessation.