T Stamp Inc. Form 10-Q Summary
Business Context and Reporting Period
T Stamp Inc. (doing business as Trust Stamp) develops AI-powered identity authentication, biometric privacy, fraud prevention, compliance, and digital identity software for enterprise, government, and peer-to-peer markets. This unaudited Form 10-Q covers the three months ended March 31, 2023, with comparisons to the three months ended March 31, 2022.
The company operates as a single reportable segment and remains an emerging growth company and smaller reporting company.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $458,633 | $2,821,044 | Down 83.74% |
| Gross profit | $241,675 | $2,127,066 | Down 88.64% |
| Gross margin | 52.7% | 75.4% | Down 22.7 percentage points |
| Operating loss | $(2,579,750) | $(1,641,120) | Loss increased $938,630 |
| Net loss attributable to T Stamp | $(2,547,450) | $(1,692,062) | Loss increased $855,388 |
| Basic and diluted loss per share | $(0.50) | $(0.37) | More negative |
| Adjusted EBITDA loss | $(2,283,787) | $(1,130,888) | Loss approximately doubled |
| Cash flow from operations | $(154,578) | $(1,141,310) | Improved by $986,732 |
| Cash flow from investing | $(191,231) | $(244,755) | Outflow decreased |
| Cash flow from financing | $(103,058) | $3,696,352 | Shifted to net outflow |
Q1 2023 operating expenses were $3.04 million, including $216,958 of cost of services, $632,369 of research and development, $1.97 million of selling, general and administrative expense, and $219,181 of depreciation and amortization. Net loss margin was approximately negative 555%, and operating loss margin was approximately negative 563%.
Revenue consisted of $383,633 from professional services and $75,000 from license fees. Three customers accounted for approximately 78.77% of revenue: an S&P 500 bank, Mastercard, and FIS.
Financial Position and Liquidity
- Cash and cash equivalents were $773,114 at March 31, 2023, down from $1.25 million at December 31, 2022.
- Total current assets were $1.80 million versus current liabilities of $5.89 million, producing negative working capital of approximately $4.09 million and a current ratio of 0.31.
- Total liabilities were $7.12 million, including $907,616 of non-convertible notes payable and accrued interest, $262,909 of warrant liabilities, and $136,008 of operating lease liabilities.
- Stockholders’ equity was negative $1.96 million at March 31, 2023, compared with positive $625,144 at December 31, 2022.
- Deferred revenue increased to $2.75 million from $1.81 million, primarily reflecting a $750,000 payment from Innovative Government Solutions and increased Mastercard license fee deferrals.
Material Changes Versus the Prior Comparable Period
- Revenue declined by $2.36 million, primarily because the U.S. Immigration and Customs Enforcement contract generated $2.24 million in Q1 2022 and was terminated during 2022.
- Cost of services declined 68.74%, primarily because ICE-related costs ceased. Management stated that underlying costs also benefited from the higher-margin Orchestration Layer SaaS platform.
- Research and development expense increased 28.09%, partly due to a 30% increase in 10Clouds billing rates, despite a reduction in the R&D workforce from 64 to 48 full-time equivalents.
- SG&A declined 36.87%, reflecting lower headcount, overhead, commissions, bonuses, travel, consulting, legal, and listing-related expenses. Global headcount declined from 100 to 83 full-time equivalents.
- Operating and net losses increased despite lower operating expenses because the revenue decline was substantially larger.
- The company onboarded 22 new Orchestration Layer customers during 2023 to date, bringing the platform total to 28 customers, including 25 financial institutions through FIS. Q1 included $58,000 of implementation revenue.
- A one-for-five reverse stock split became effective for Nasdaq trading on March 23, 2023. Stock and per-share information was retrospectively adjusted. Stockholders subsequently ratified the reverse split on May 13, 2023.
Outlook, Risks, Contingencies, and Unusual Items
The filing provides no formal quantitative revenue or earnings guidance. Management describes an expected transition toward a scalable SaaS model through the Orchestration Layer and anticipates Mastercard use-based revenue beginning in 2023 and growing thereafter. The filing also states that negotiations for significant additional revenue were advanced but not sufficiently certain to be included in the going-concern assessment.
- Going concern: Management states that substantial doubt exists regarding the company’s ability to continue as a going concern because of recurring losses, negative operating cash flow, negative working capital, accumulated deficit of $41.85 million, and dependence on additional revenue and financing.
- Subsequent financing: On April 18, 2023, the company issued 563,380 shares and sold and exercised pre-funded warrants for an aggregate 1,573,330 shares, generating net proceeds of approximately $4.78 million after placement and legal costs. It also issued warrants exercisable for up to 1,573,330 shares at $3.30 per share, creating potential dilution.
- Customer concentration: Three customers represented 93.21% of accounts receivable at March 31, 2023, and the three largest customers generated 78.77% of Q1 revenue.
- Contract concentration and cancellation risk: IGS may terminate its master services agreement for convenience before future revenue advances become due. Many customer contracts can also be terminated with limited notice.
- Banking exposure: The company transferred cash from Silicon Valley Bank to JPMorgan Chase following the bank’s failure. It reported no cash loss or impairment but continued to hold material balances at Silicon Valley Bank as of the filing date.
- Internal controls: Management continued to report material weaknesses involving journal-entry review and information-technology controls, including program changes, segregation of duties, and access controls. Remediation was in process.
- Unusual items: Four leases were terminated during the quarter; related lease termination fees were $10,932. Certain phone equipment was classified as held for sale, and on April 26, 2023 the company sold a portion of property and equipment for $451,000 at an estimated gain of $287,000.
- Debt and obligations: Malta-related notes payable totaled $907,616 including accrued interest. A $177,905 financial liability related to mobile hardware was classified as held for sale and was expected to be paid during 2023.
- Legal matters: The company reported no pending or threatened litigation.
Most Important Facts for Investors to Verify
- Whether the April 2023 financing and approximately $4.78 million of net proceeds materially improve liquidity and resolve the going-concern uncertainty.
- Whether revenue recovers following the loss of the ICE contract and whether Orchestration Layer, Mastercard, FIS, and IGS programs generate recurring, collectible revenue.
- The timing and enforceability of future IGS revenue advances and the effect of any termination rights.
- The extent of dilution from the April financing, outstanding warrants, options, restricted stock units, and other potentially issuable shares.
- Whether management remediates the reported material weaknesses in internal control over financial reporting.
- Customer concentration, accounts receivable collectability, and the company’s ability to convert deferred revenue into recognized revenue and cash.
- The company’s cash burn, operating expense reductions, and need for additional capital beyond the April financing.