Q1 2021 Aware Inc Earnings Call
Its 31st 2021.
Our total revenue and the first quarter increased 26% to $4.4 million from $3 5 million in Q1 of last year.
Sequentially revenue increased 29% from $3 4 million in the prior quarter.
Both the sequential and year over year increases were primarily due to increased subscription based revenue related to growing transaction volume from existing customers and the upfront recognition of fixed minimum amounts from two new international wins.
Turning our attention to operating expenses.
And the first quarter of 2021, our operating expenses increased 21% to $5 9 million from $4 9 million and Q1 of last year.
The quarterly increase was due primarily to and investment in additional sales and engineering resources and early 2020.
And a full quarter of operating and cost from our ethics acquisition in late 2020.
The corresponding operating loss for the first quarter of 2021.
It was $1.4 million compared to an operating loss of $1 $3 million and the same year ago period.
The year over year increase in operating loss resulted primarily from the aforementioned operating expenses, partially offset by the increased revenue in the quarter.
For the first quarter of 2021.
GAAP net loss totaled $1.4 million or seven cents per share.
Compared to a GAAP net loss of $1 $1 million or five cents per share and the same year ago period.
Our adjusted EBITDA loss for the quarter, which we reconcile and the earnings release totaled $1 $1 million. This compares to a similar adjusted EBITDA loss of $1 1 million and the same year ago period.
On the balance sheet, we had $36 million and cash and cash equivalents at the end of the quarter compared to $38 6 million as of December 31, 2020.
For the three months period, we used $2 $5 million and of course of operations.
Aware maintains a strong and strategic cash position that enables us to allocate capital to high ROI opportunities as they present themselves. We're actively continuing to evaluate opportunities to ensure that we are making strategic investments to realize growth and scale as an organization.
Organically, we've seen significant growth from our nomi subscription and counts, we've surpassed 7 million transactions and the first quarter alone and comparison, we had $11 million for the entire year of 2020.
The growing volumes as test to the strength and scalability of this product line and this success is paving the way for future growth as new customers on board based on the recommendations of our current customer base.
This completes my financial summary, now I'd like to turn the call back to Bob for additional insights on our operational progress and Q1 as well as key initiatives and priorities in 2020, one and beyond.
Bob.
Thanks, very much Dave if I remember from the last call I shared what we referred to as a three part transformational growth strategy.
I'd like to frame my discussion around those three core pillars and discuss the progress we've made so far on bringing this working strategy to fruition before.
Before getting to that though earlier I indicated my excitement around some successes, we had and the first quarter let.
Let me take a minute to tell you how it's an exciting time to be and our biometric space in general.
From a market perspective, there was an increased attention a password less authentication and general and.
And consumers are becoming more confident and biometric technology.
And particularly with the pandemic consumers are looking for contactless and remote ways to verify their identity.
We are seeing an increase in demand for touchless biometrics solutions as well as for remote on boarding and authentication as entities continue to look for ways to conduct secure business transactions without requiring a face to face contact.
We're also seeing a lot of money, making its way into the wrong hands from fraudulent recipients of pandemic assistance payments or scams and claimed to be authorized pandemic assistance programs. This is increasing the visibility around the need for safe secure and convenient identity verification.
Considering this combined with the trajectory of the global biometric system market.
Which is expected to grow at a CAGR of 18%.
And the trajectory of the global SaaS market also expect to grow at a CAGR of 18%, we reaffirm our transformational strategy and are confident in our approach.
And given that multifactor authentication is expected to be the fastest growing segment.
Our expertise across biometric modalities positions us well to meet the needs of the markets we're targeting.
Now back to our strategy. The first pillar of our growth strategy is the continued transformation of our existing platforms to create focused offerings that more appropriately meet the needs of our clients.
And we noticed throughout the pandemic and within the past decade, the world has changed dramatically.
You may recall, a time when system integrators, we are required to build large enterprise systems integrate over and over again with various sdk's.
Today's demand focuses on at the ready offerings that scale as you grow and nomi meets these requirements.
<unk> enables proctor and unproductive document verification, along with face and voice matching and liveliness detection.
It is recognized as one of the industry's leading liveliness and matching software frameworks and has proven itself to be a hallmark of the aware brand.
During this quarter as Dave mentioned Nuomi has secured a total of $7 million transactions, which puts us well on our way to surpassing the 11 million transactions recorded last year and all.
These performance and adoption reinforces our focus on expanding the offerings geographic and sector diversity.
Nuomi is up and running around the world.
Among the list of customers or some of the largest private sector banks and financial institutions and various regions.
Latin America, and particular as one of the fastest growing regions and the global biometric software market.
And the past few years theres been a material embrace of the biometric technology, both on Latin Americas, private and public sectors, driven by government spending increased security spends cybercrime mitigation and border management investments.
Our existing relationships combined with our portfolio of offerings that are easy to integrate easy to install and easy to use positioning us well to capture additional market share and emerge as the go to biometric expert in the region.
On the last call, we mentioned that a core tenant of our go forward strategy involves penetrating new growing and emerging markets.
While we continue to remain focused on government and financial services. We also recognize the growing list of other areas that can benefit from biometric applications.
These include data and network security personal security and consumer services health care and shared economy.
This quarter, we made a foray into the health care space by working closely with a digital identity company to help institute unified and secure strategies for managing patient identities.
Mobile healthcare biometrics market is expected to grow at a CAGR of 24% over the next four years, which presents and encouraging opportunity.
As we onboard new channel partners and continue to win new customers. We believe that we can expand our foothold within the health care space and the additional growth markets. We've previously identified.
Our partnership expansion didn't stop with health care.
We also recently announced a strategic partner and inner seed.
Intercede willpower, there my I D system with our biometric solutions in order to enable secure multi factor authentication and digital identity issuance and management for federal agencies and larger enterprises.
Though still and it's early stages, we've already secured a significant win.
Together with inner seed will be working on a 10 year multimillion dollar contract to issue and manage the lifecycle of digital identities for thousands of U S debt.
Apartment of state employees.
Intercede will be formed and the integration and providing the hardware.
We will be providing the software on the backend.
This enables us to focus on our core strength and reinforce our technological edge throughout the process.
We intend to keep you all updated as our partnership with NRC devolves and share new engagements and success stories.
The third and final major piece of our transformational strategy is the shift towards our biometric identity management as a service.
These are our customer configurable usage base use what you need SaaS services.
These offerings will drive sustained growth across multiple verticals and ultimately offer a stronger recurring revenue base that grows as our customers grow.
Both of our subscription and renewing term SaaS models provide recurring revenue.
Most have upfront recognition for the customers and minimum obligation followed by revenues commensurate with their particular customers usage or transaction level exceeding their minimums.
As I mentioned earlier, the timing of revenue recognition may cause quarterly revenue and fluctuate.
For example, Q1 subscription revenue approach the same level as all of fiscal year 2020.
Independent of this we look at our success with Gnome is illustrative of these business models and we anticipate that we'll finish 2021 with material subscription revenue growth over 2020.
For now the number of transaction secured by Nomi serves more or less as a proxy for the overall growth trajectory of our subscription business with some lumpy revenue whenever we onboard new customers.
We expect a steady and materially increase and transactions and subsequently subscription revenue as our customers usage increases and we deploy our SaaS offerings.
The model that I just described enables a more consistent long term performance and an increase quality revenue.
Also allows smaller customers have joined the game at their own pace.
Customers, who may have historically felt put off are left out by committing or having to commit to a perpetual license.
It's important to emphasize that while we are pleased with our performance this quarter.
We're also mindful of the effect that revenue recognition and implementation timelines play and creating revenues that appear lumpy from quarter to quarter.
That Lumpiness may continue for some time as we transition from our legacy model to a newer subscription based model.
Astley I'd be remiss, if I didn't briefly touch on our corporate development initiatives, we are aggressively pursuing external growth opportunities that complement our core capabilities and market sectors. However, our near term focus continues to remain on expanding our pipeline and executing on our multi pronged growth strategy.
We ended the first quarter on a strong note and are on a great position to continue executing our strategy throughout the rest of the year.
With that we're ready to open the call for questions. Matt Please provide the appropriate instructions.
Thank you Bob as a reminder, you can submit a question using the built in ask a question feature and the webcast player. Please hold while we populate the question.
Our first question is congratulations on the property sales can you discuss the company's future real estate plan.
Why now was the right time to sell the headquarters and what you plan to deal with the incremental capital.
And so net.
And I'll answer that.
Early this year and we received an unsolicited request from the developer.
And that was to purchase our office building and Bedford and as part of a bid submitted and for Big Government project.
And so in order to include potential purchase and the bid we are required and negotiate terms and so on purchase and sale agreement.
We just said, we just completed that.
Yes.
Material event assigning those disclosed in our SEC filings, which is why we included it in our 8-K.
That said.
A lot on whatsapp and the tie.
Im line is uncertain and doesn't necessarily mean that building will be sold.
But more importantly, the developer has to women with competitive bid from the government.
And we don't we don't know the outcome.
Outcome of this.
And for some time and if we do proceed to a cell details will be disclosed.
Relative to the regulations the fourth C C.
Thanks, Bob Our next question is when does the company intend to start disclosing subscription revenue.
Thanks, Mike, Matt and I can take that.
This is Dave Barcelona.
And our.
Our.
Subscription revenues are disclosed in the upcoming 10-Q and they are not on the face of the financials and say, it's not had a materiality threshold yet.
But as they continue to grow we are keeping an eye on that but we have disclosed.
The some of the E subscription revenues for the quarter.
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Thanks, Dave. Our next question is how would you judge and the current progress and commercial biometric.
Yeah, I'll leave you on that one.
Yeah happy to Bob So on our progress has been very good so far, especially with the recent wins.
And I believe this quarter the split between government and commercial is roughly 40, 60, and with 40% of our sales from coming from commercial customers. So very happy with the progress there and the success, we're having around the subscription revenues, which are largely coming from our commercial customers.
And we.
Expect that to a net debt.
And to continue.
And we have a probably another question for you can you provide more color on the two new international wins that are generally generating minimum revenues.
Okay.
Yeah, So let me.
Unpack that a little bit so the two new international wins.
And.
Are coming from customers in various parts of the world we.
We continue to see great progress in Latin America are both in Brazil.
Brazil, Mexico and other parts of the region, so oh with that and new customer in Latin America, and as well as a added customer over in Europe.
I think great geographic expansion here and it could progress.
And then in terms of the.
In terms of the minimum.
Our.
Subscription revenue is recognized a bit upfront for these two customers, but we will see it recurring with annual renewals are at the same low levels.
And today, we have another question can you provide a bit more context on the consumption based revenues that you mentioned and the deck very impressive transaction count this quarter, just trying to get a sense of how these transactions are converted into revenue and how.
And you would be interpreting these transaction volume.
Yeah. That's a great question gives me a little opportunity band a little bit on the last bit so our transaction count isn't necessarily a direct correlation for the subscription revenue and the quarter and.
As I was hinting at before we've got these monthly minimums. So our subscription based customers fall into one of two categories those with minimum annual commitments and those without.
So if a customer has a minimum commitment.
And then the majority of that annual minimum is recognized upfront and that and that quarter.
And then when they go over their minimum transaction counts.
And recognize the revenue as it occurs and that and that period throughout the year.
And for customers that have no minimum they fall into the latter part of that category.
And their revenue will be recognized at the time of usage and in each quarter. So.
When you think about and in aggregate.
The volume should be a good correlation for annual revenues, but we'll we will be much more lumpy on a quarterly basis due to these upfront minimums, where some of the customer base.
Thanks, Dave our next question.
And we've noticed that there's been some pretty significant M&A activity and the space recently, particularly as it relates to Microsoft acquisition of nuance.
Given how big they now become do you think there is any room to compete on the speech recognition side.
How much of an effect do you think the acquisition has on aware the ability to compete and high growth verticals like healthcare.
Thanks, Matt.
Well first of all it was never our intention to compete against nuance and speak speech recognition.
And their specialty is around speak recognition.
And use cases associated with that like when you have a customer call on call Center line and speak and answer to get.
<unk> it to the appropriate representative.
We are focused on and our voice specialty is on speaker recognition. So the differences.
And.
And that's about what you say and more about verifying the identity of the person speaking.
I did just mentioned.
Speaker recognition becomes more important as a.
As an adjunct or is fused option relative to face her finger or voice.
Or iris.
This will also add or eliminate some of the multifactor authentication needs and some of the friction.
So and all that being said.
Yes, we know how to do speech recognition, but its really about the identification of the individual based on theyre opting in or there you. So it's we're all about the speaker recognition.
And and so we don't think the acquisition is going to impact our ability to go after speaker recognition use cases, it's.
As a matter of fact, we're working on a couple right now and we are targeting those and our high growth verticals, which include healthcare and you heard me talk about Oh care opportunity that we just were able to close this quarter.
And Additionally, we have the proven expertise and experience from a multimodal biometrics and use.
Separately as I said are in combination and the enrollment process and the authentication process and.
And it's a critical piece that's often overlooked.
And by companies that specialize and speak speech recognition.
So we're confident that this acquisition won't detour our success in the and our serviceable addressable market.
Yeah.
Thanks, Bob Our next question I've noticed that a lot of close competitors and the Oems are providing health care travel passes digital Ids and it.
It seems to be a trend that emerged post COVID-19 and is growing larger and larger.
Where have a play in this space or are there plans to work with a partner on implementing a solution like this.
Thanks, So I mean, obviously is.
Is the topic of the day and of the year and as I stated before we remain focused on our long term strategy.
And we are actively monitoring and discussing around vaccine passports and close contact with resellers and customers regarding use of biometrics.
To secure those control those.
We believe that the <unk>.
Health applications need to tie to a trusted identity and protect the user.
The public and the information.
Got the health App.
Carries or being able to project we documented.
Or create another one is one that they're facing right now so we want to be able to and we are.
Providing volume metrics.
Help enable that not to be the case that and individual can steal your vaccine identity now or use that nefarious slate. So.
So we do provide biometric software to many system integrators, and we will enable them and turn to develop customer facing apps for many of these type of applications.
Hey, Bob can you shed some more light on when we will see the transformation and pick up speed what are some indicators day, you've been through the bulk of the transformation.
We expect to see.
So we expect to be seeing subscription revenue overtake license revenue and a few quarters few years.
Well.
Dave may be able to add a little bit more color to it but we can't.
Currently speak with greater certainty as we are in the initial stages of our subscription transformation.
And our.
Legacy.
Perpetual license to subscription transformation and and also our SaaS services, but.
As you can see we do see a steady and positive increase and we've got some key indicators.
And I mentioned in the 10-Q as we go through this and Dave talked about the high number of transactions and also the minimum some of the subscriptions that we have set up and also in the past calls I've talked about.
Term contracts.
We're looking to set up subscriptions, but at a longer term three and five years to get the quality of revenue and make sure that.
The customers are with us for a long time and that also cuts down on their switching costs.
And it also gives us a good stand and that so.
At this time.
We're seeing it pick up speed and and where we're there to work with our customers from the smallest to the largest and since we've been able to.
Provide a subscription type service, we've been able to onboard.
More smaller players to enable them to make a bigger I'll say, a disruptive impact and the biometrics market.
Thanks, Bob.
We have another question you talked a bit about lumpiness is there anything in the quarter to signify this quarter was a I love such as license payments or initial subscription payments that may not repeat next quarter.
Yeah.
Dave do you want to take that one I mean, I think we just talked about that a minute ago.
But.
If you don't want to I can I can address with either way.
Yeah.
Yeah Bob.
And I think overall the main message here is that our revenue should be looked at for from the annual basis. There is some ups and downs.
But yes, this will be our third.
Consecutive quarter of growth Q2.
We're looking.
And looking.
And to achieve what we can but debt.
It would you have some lumpiness and Q1 and we're not.
Projecting out what what we're doing on a quarterly basis.
Yeah, Let me, let me add to that a little bit I think just to be clear Dave added some discussed earlier on the lumpiness some of our contracts subscription contracts, let's say there are three year term or a five year term.
Most of them have a minimal so let's say they say, okay. We're going to do a 1000 transactions are 100000 transactions. So a lot of them have a minimum whenever that minimum is decided.
Revenue will be recognized for that minimum entry level and that particular quarter and then from there out as they exceed those minimums. It will then be added to the subsequent quarters. So the following year Youll get the same again and that quarter. If you have a.
A three year contract it will happen for three years or five so forth.
So is there is some revenue.
Revenue recognition relative to the.
Maintenance, that's pulled out and other things, but it's very.
Yeah.
If you've got a three year term contract.
One a month for the whole year, you wouldn't see any lumpiness.
And if it's the same value, but but again just to just to be clear that we're looking at things at a yearly basis.
Hopefully that and.
Answered your question Matt.
Our next question is if the subscription revenue as disclosed in the 10-Q can you. Please tell us what the subscription revenue was in the quarter and last year.
Dave you want to take that one.
Yeah, and congrats that Bob.
Yes. So this will be the first time, we are disclosing subscription revenue I think we've talked about it and our last.
Earnings call so happy to have it in the Q that will be released shortly.
Our subscription revenue for the quarter was a shade under 800000 and as you may have noted in the earnings release, and we only mentioned that or CT.
Quarterly subscription revenue was.
And the same as or roughly the same as it was for all of last year. So certainly happy about that progress and as we go forward and we will continue to disclose and we expect to continue to disclose their subscription revenue and once it becomes material.
And you'd be included in the face of the contract I'm, sorry pace of the 10-Q.
Thanks, Dave.
So we have a follow up question.
Thank you for adding color on the company's plan for inorganic growth via strategic M&A would love to understand how the company thinks about share repurchase versus acquisitions.
Especially in light of day 2020 share repurchase authorization.
Yes, let me, let me take that well one thing I mean, you can just see what we have I think I've mentioned and the call and I know I mentioned on the call and we're looking at opportunities. We picked up what we believe is and it was a good match for us and so we're doing trade offs as we go.
<unk> two.
What's the best way to use our cash.
So overall, I mean, and we have the opportunity and we have the flexibility to do that and we.
We make that on a on a quarterly basis and as I said, we're actively looking to.
Focus on our long term growth strategy.
And in that there's those decisions that we make and have a discussion around the.
And if we find good fits externally and also whether theres some opportunities internally, where we want it to accelerate on for instance, our SaaS services and our offerings so and.
It's a long winded question, but there are a bunch of trades that go into that and it's not a simple are we going to resume our not resume we have the option to way we are set up to be able to do what's best for the company.
Yeah.
Thanks, Bob at this time. This concludes our question and answer session. If your question wasn't answered please email and whereas IR team on AWS E and gateway IR Dot com and.
And I'd like to turn the call back over to Bob for closing remarks.
Well I want to I want to thank all of you for joining us on todays call. During our last call, we mentioned that we'd be releasing and investor presentation.
Changing a bit more of information.
About the strategy that we outlined last time and here.
And that presentation is now available on aware as Investor Relations website.
And.
And I'd be remiss, if I didn't.
Especially thank our employees and partners investors for their and your continued support and we look forward to updating you on and our next call.
So with that and Matt.
I would like to remind everyone that a recording of today's call will be available for replay via link available and the investors section of the company's website.
Thank you for joining today for aware as first quarter 2021 earnings Conference call you may now disconnect.