T Stamp Inc. 10-Q Summary — Third Quarter 2023
Business Context and Reporting Period
T Stamp Inc. (doing business as Trust Stamp) develops artificial-intelligence, biometric, identity-authentication, privacy, and fraud-prevention software for enterprise, government, financial, humanitarian, and peer-to-peer markets. The filing covers the three and nine months ended September 30, 2023. The financial statements are unaudited and include the effects of a one-for-five reverse stock split effective March 23, 2023.
Financial Performance and Position
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Revenue | $3.07 million | $1.35 million | $3.99 million | $4.88 million |
| Operating loss | $(0.02) million | $(3.44) million | $(4.98) million | $(8.02) million |
| Net loss | $(0.04) million | $(3.44) million | $(4.75) million | $(8.05) million |
| Net loss per share | $(0.00) | $(0.75) | $(0.71) | $(1.75) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(5.88) million | $(4.84) million |
- Q3 revenue increased 127.4%, primarily from recognizing $2.51 million of non-refundable IGS license advances following termination of the IGS agreement.
- Nine-month revenue declined 18.3%, mainly because the ICE contract generated $3.29 million in the prior-year period and was terminated in 2022.
- Approximate gross margin was 92.2% in Q3 2023 versus 60.8% in Q3 2022, and 83.4% for the first nine months of 2023 versus 67.8% in the prior-year period.
- Q3 operating margin improved to approximately negative 0.7% from negative 255.3%; the nine-month operating margin was approximately negative 125.0% versus negative 164.5%.
- Adjusted EBITDA was positive $316 thousand in Q3 2023 versus a $2.36 million loss in Q3 2022. For the nine months, Adjusted EBITDA was a $4.05 million loss versus a $5.79 million loss in the prior-year period. This is a non-GAAP measure.
- Cash and cash equivalents were $3.18 million at September 30, 2023, compared with $1.25 million at December 31, 2022. Current assets were $4.30 million and current liabilities were $2.05 million, producing a current ratio of approximately 2.10.
- Total liabilities were $3.24 million, including $903.8 thousand of notes payable, $258.1 thousand of warrant liabilities, and $162.1 thousand of short-term financial liabilities.
- Accumulated deficit was $44.05 million and total stockholders’ equity was $4.23 million at September 30, 2023.
Material Changes Versus the Prior Comparable Period
- Operating expenses decreased 30.5% for the nine-month period to $8.97 million. Selling, general, and administrative expense declined 34.5%, while research and development expense increased 2.6%.
- Headcount declined from approximately 100 to 86 employees overall, and research and development headcount declined from 64 to 50 employees.
- Stock-based compensation fell to $305 thousand from $1.60 million for the first nine months.
- Operating cash burn worsened to $5.88 million from $4.84 million despite the lower net loss, partly because deferred revenue declined by $1.72 million.
- Financing activities generated $8.03 million, including $4.78 million and $2.69 million of net proceeds from two institutional offerings and $622 thousand from warrant exercises. These transactions materially increased shares outstanding and warrants.
- Shares outstanding increased to 8.24 million at September 30, 2023 from 4.85 million at December 31, 2022. An additional 3.76 million equity-classified warrants were outstanding, along with 4.53 million potentially dilutive securities excluded from diluted loss per share.
- Property and equipment declined to $60.5 thousand from $300.7 thousand after the sale of mobile hardware for $377 thousand, generating a gain of approximately $213 thousand.
Outlook, Commentary, Risks, and Unusual Items
- Management is shifting from custom solutions toward the Orchestration Layer, a modular SaaS platform. Thirty-eight enterprise customers, including 35 financial institutions, had been onboarded by September 30, 2023. Management expects limited revenue from many FIS-related customers until 2024 and anticipates stronger SaaS revenue thereafter.
- Management cited gross margins above 83% for the flagship Orchestration Layer customer and expects user-based Mastercard revenue to begin in 2024 and grow thereafter. The filing does not provide formal revenue or earnings guidance.
- IGS terminated its master services agreement effective September 15, 2023. Trust Stamp recognized $2.51 million of previously deferred non-refundable advances and stated that no further performance obligations or contingencies remained under the agreement.
- The company disclosed substantial doubt about its ability to continue as a going concern. It has not generated profits, incurred $5.88 million of operating cash outflows in the first nine months, and expects to require additional revenue and/or financing. Management stated that additional revenue negotiations were advanced but not sufficiently committed for going-concern evaluation, and no assurance was given that future capital raising will succeed.
- Revenue and receivables are highly concentrated. Three customers represented approximately 90.5% of nine-month revenue and 92.7% of accounts receivable at September 30, 2023.
- Cash held in U.S. bank accounts exceeded FDIC insurance limits by approximately $2.60 million at September 30, 2023.
- Management concluded that disclosure controls and procedures were not effective because previously reported material weaknesses in journal-entry review, information-system controls, segregation of duties, and access controls remained under remediation.
- The company reported no pending or threatened litigation and no defaults upon senior securities. Four operating leases were terminated during the period, and a $162 thousand mobile-hardware financial liability was expected to be paid by year-end 2023.
Important Facts for Investors to Verify
- Whether the Q3 revenue increase is sustainable after the one-time or unusual recognition of the $2.51 million IGS advances and the termination of the IGS agreement.
- The timing, conversion, and revenue economics of the 38 Orchestration Layer customers, particularly the 35 institutions onboarded through FIS.
- Cash runway given approximately $5.88 million of nine-month operating cash burn, the disclosed going-concern uncertainty, and management’s expected need for additional financing.
- The dilution impact of the 8.24 million shares outstanding, 3.76 million equity-classified warrants, and other outstanding options, RSUs, and warrants.
- Customer concentration, including the dependence on IGS, Mastercard, an S&P 500 bank, FIS-related deployments, and other major customers.
- Progress in remediating the material weaknesses in internal control over financial reporting.