Apple explains what exactly happened when Face ID ‘failed’ during iPhone X demo | 9to5Mac

tl;dr: they were holding it wrong

"Apple has officially clarified what happened on stage when the first demo of Face ID didn’t go as planned. While many were quick to call it a “fail,” that’s not what happened in the slightest. Apple confirmed the situation in a statement to Yahoo this evening… Apple explained that the demo iPhone X had been handled by several people before being setup at the demo table for Craig Federighi. Face ID had tried to authenticate the faces of everyone who handled the device, and after failing, the iPhone X moved to require a passcode. Thus, when Federighi went to demo Face ID, the iPhone X was already in passcode mode."

Apple explains what exactly happened when Face ID ‘failed’ during iPhone X demo | 9to5Mac