Q2 2021 Aware Inc Earnings Call
1 earnings conference call.
Earnings today is the company's CEO and President Robert Echo and CFO, David Barcelona. Following their remarks, we will open the call for questions if.
If you'd like to submit a question you can do so at any time using the built in ask a question feature in the webcast player before.
Before we begin today's call I would like to remind everyone that the presentation. Today contains forward looking statements that are based on the current.
Patients are aware of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those described.
Listeners should please take note of the Safe Harbor paragraph that is included at the end of today's press release.
This paragraph emphasizes the major uncertainties and risks inherent in forward looking statements that management will be making today.
We're wishes to caution you that there are factors that could cause actual results to differ materially from those indicated by such statements.
These risks and uncertainties are also outlined in the company's SEC filings, including its annual report on form 10-K, and quarterly reports on form 10-Q.
Forward looking statements should be considered in light of these factors.
You are cautioned not.
Current ex undue reliance upon any forward looking statements, which speak only as of the day made.
Although it may voluntarily do so from time to time or undertakes no commitment to update or revise the forward looking statements whether as a result of new information future events or otherwise, except as required by applicable securities laws.
Additionally, this call contains certain non-GAAP financial measures.
As the term is defined by the SEC and regulation G. non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP.
Accordingly aware has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure in the Companys earnings release issued today.
I would like to remind everyone that this presentation will be recorded and made available for replay via a link available in the Investor Relations section of the company's website.
Now I would like to turn the call over to <unk>, CEO and President Bob <unk> Bob.
Okay.
Thanks, Matt and good afternoon, everyone and thank you for joining us today.
After the market close we issued a.
A press release announcing our results for the second quarter ending June 32021.
A copy of the press release is available in the Investor Relations section of our website.
On our third earnings call together and I'm proud to report there we continue to see the initial impacts of the restructuring that we began.
And just over 18 months ago.
I am thankful for the opportunity to address all of you and reiterate why we believe aware is poised for rapid growth in the coming years.
I planned to discuss the progress we've made throughout the second quarter and why are we are looking forward to what is ahead on this call I'll provide you with a high.
[noise] level overview of this quarter's operational results.
I will then turn it over to our CFO, Dave Barcelona to review more more of the.
Details on our financial results for the quarter.
And then take some time to discuss what we have on our near and long term horizons. After that we'll open the call for your questions.
In the second quarter of 2021 we made several key advancements on ongoing initiatives that have and will prepare us well for our future.
1 of the most notable is the successful integration of the avionics product line, which.
Which we acquired in November of last year.
Financially we are seeing an immediate top line.
Clift, which will pay for itself in a relatively short time span.
This quarter also marks the fourth consecutive quarter of record Nuomi transactions.
With the more than 18 million transactions in the first half compared to $11 million in all of 2020, we're already at 5 times the number of transactions in the first half.
From 2020.
As our transformation continues and subscription customers begin to record transactions.
On contract Minimums, we expect these to convert to a stable growing revenue stream.
More and more government agencies and subject matter experts are paying attention.
<unk> 2 our unique value proposition.
This is evidenced by a considerably large and growing pipeline and base.
Unlike some others in the biometric space, who offer point solutions or a single modality for specific applications. We can provide multimodal multifunction applications that.
Interface with all kinds of devices systems and hardware via our biometric middleware disadvantage.
This advantage enables us to compete effectively be entry level and single offering players in the market on.
On the other end of the spectrum there are identity leaders competing for complex programs and deliveries that require.
Require a full suite of hardware and integrated software solution.
While we are not a systems integrator and therefore did not directly bid for these large scale projects, we can and do partner with many of these leaders.
And others to provide our harden proven software as requested our unique approach to buying.
Metrically accessibility complemented by our core offerings provides us exposure to customers of all size and all geographies.
I'm looking forward to talking about what lies ahead on the horizon and a little bit but for now I'll turn it over to Dave Barcelona, who will walk us through our financial results for the quarter, Dave over to you.
Thank you Bob.
Good afternoon to everyone on the call, let's turn our attention to the financial results for the second quarter ended June 30th 2021.
Our total revenue in the second quarter was up 2.3 times the same year ago period, the $4.3 million up from $1.9 million.
2020.
This compares to revenue of $4.4 million in the first quarter.
Year to date for the 6 months ended June 30th 2021, our total revenue increased 61% to $8.7 million up from $5.4 million in the same year ago period.
The increase in revenue was primarily due to increased subscription based revenue from growing transaction volume with existing customers and the upfront recognition of fixed minimum transaction amounts from 2 new international wins.
With regards to our operating expenses.
For the second quarter of 2021, our operating expenses increased 4% to $5.8 million from $5.6 million in Q2 of last year.
For the 6 months ended June 30th 2021, our operating expenses increased 12% to $11.7 million from $10.5.
5 million in the same year ago period.
The quarterly and 6 month period increases were due primarily to sales and marketing resources acquired in our ethics acquisition.
Corresponding operating loss from the second quarter of 2021 was negative $1.5 million compared to an operating.
<unk> loss of negative $3.7 million in the same year ago period, an improvement of 58% over last year.
The year over year decrease in operating loss resulted primarily from the aforementioned increase in revenue.
Operating loss for the 6 months ended June 32021 was negative 3 million.
Compared to an operating loss of $5 million in the prior year period.
Decrease in operating loss was primarily the result of increased revenues.
For the second quarter of 2021, GAAP net loss totaled negative $1.5 million or negative 7 cents per diluted share compared to a GAAP.
GAAP net loss of negative $3.1 million negative 15 cents per diluted share in the same year ago period.
GAAP net loss for the 6 months ended June 32021, total negative $3 million or negative <unk> 14 cents per diluted share compared to a GAAP net loss of negative $4.2 million or.
Negative <unk> 20.
Per diluted share in the prior year period.
Our adjusted EBITDA loss for the quarter, which we reconcile in our earnings release.
Total of negative 900000. This compares to an adjusted EBITDA loss of negative $3.3 million in the same year ago period.
For the 6 months.
<unk> ended June 32021, adjusted EBITDA loss totaled negative $2 million compared to an adjusted EBITDA loss of negative $4.5 million in the prior year period.
On the balance sheet, we had $35.2 million in cash and cash.
<unk> at the end of the quarter compared to $38.
$6 million as of December 31, 2020.
For the 6 month period, the use of cash was primarily from 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 evaluate.
Value added opportunities to ensure that we're making strategic investments to realize growth in scale as an organization.
Organically, we've seen significant growth from our nomi subscription accounts, we recorded more than 18 million transactions in the first half which is 5 times.
<unk> the number of recorded transactions in the first half of 2020, this is compared to $11 million in all of 2020.
The growing volumes that tested the strength and scalability of this product line and the 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.
Now I'd like to turn the call back to Bob for additional insights on our operational progress our key initiatives and our priorities in 2021 and beyond.
Bob.
Thanks, Dave.
Last year, when we began ramping up our diligence on acquisition targets.
We are particularly looking for opportunities that would be both immediately accretive and synergistic with our business transformation.
Apex, which provides turnkey face in fingerprint biometric matching and forensic analysis software for small to medium sized law enforcement and government agencies fit those criteria.
In addition.
Additional to accelerating and securing our future expansion at the law enforcement and civil I D. The introduction of use of aware, it's facial recognition software in the fixed products provides an extra layer of validation and authority that is essential for bringing new accounts into the sales funnel and converting them into customers.
Simply put our purchase.
<unk> of apex gives us the ability to grow and serve a much more diverse customer base.
Whether theyre looking for a smaller solutions or larger enterprise solution implementations that can scale to millions of identities and records.
We have jointly recognize operational cost savings development savings and most importantly.
And even better a fixed product to help law enforcement serve and protect their communities.
Now that we've completely integrated a fixes products people and culture into ours, we are already making traction in business development.
And once aware as facial recognition software powers, the apex system will achieve higher.
Performance at a lower cost with a comprehensive service.
We are happy to report.
Post integration that the customer retention rate remains upward of 90% and mirrors, our core retention profile in fact customers are doubling down on previous commitments contemplating of the ocean of aware it's facial recognition.
And additional modalities that are now available to them.
The connectivity incompatibility of apex, with our Avis offering will allow counties or municipalities to scale and connect with other agencies.
It would be able to use all the same tools that they've been using as existing customers, but now with premium service.
And unprecedented interconnectedness made possible by our middleware.
This kind of investigative ability will allow agencies to be more self reliant while at the same time, providing assistance to other law enforcement departments in the area.
With ethics under our wing and part of our portfolio.
We have.
So experienced remarkably positive second order effects that will ultimately play a transformational role in bolstering our top line.
By acquiring the a fixed customer book of business, we have developed a strong lever through which we are able to address bids from much larger projects Our association with apex has provided.
All references based in more than 500 sites across the U S and in more than 25 countries.
Some prospects, we're looking to solve problems that our core offerings address would not entertain our bids without the street cred that these references provided.
Now we have increased our access to a larger set of opportunities.
US with a much higher value.
With each new connection via a fix we increased the likelihood of winning these adjacent opportunities that just over halfway through the year. We have a line of sight into a number of these deals and are working diligently to secure them.
For these reasons the apex acquisition is exemplary.
The army of how we want integrations to go.
The team is ready and skilled in this area. It's also an excellent case study that speaks to the effectiveness of a hybrid organic and inorganic growth strategy.
As Dave said earlier, we are in a strong financial position and are looking to deploy capital to the highest value inorganic.
Samplers.
And we've identified additional opportunities that we believe meet our criteria.
Though we do not have any updates to report at this time, we are continuing to actively monitor and review the space and ramp up our diligence.
Turning to our financial performance, we are encouraged by the more than doubling of our Q2 top.
Attunity last year.
We are still in an early stage of removing the lumpiness associated with term and the legacy perpetual license model. It's clear that we are on a longer term trajectory that's trending upwards.
As we continue to ramp up the subscription side of our business. Our model tells us that some of this lumpiness, we're more or less fade away.
Line from as a lump sum minimal contract recognitions represent a smaller proportion of total revenues than our recurring revenue base. We have also begun to see initial expansion in our installed base with existing customers leveraging our product portfolio for more use cases and or adding more realities.
Wei Rais additional applications of our technology.
In the prior 2 calls I described the importance of working with partners to provide us exposure to new verticals and to expand our reach in existing verticals.
Last month, we successfully leverage a technology partnership with and provider to enter the health care space.
At this.
2 is red Hot.
While the global facial recognition technology market at large is anticipated to grow at a CAGR of 23 per cent the health care biometric market beats that at a CAGR of 24, 2% it's.
It's an exciting place to be and with a record number of revolutionary help tech firms working on disruptive technology.
Time, there's room for us to grow.
We see a fit for biometrics in any use case, where trusted transactions are important and health care is no exception with biometric enablement quickly become in the future of business.
Travel health care and our general livelihoods, we recognize the added pressure on software providers like us to protect.
You maintained the privacy of our users.
That responsibility to our users has always been a core pillar of our business as we navigate our ramp up we're taking actionable steps to continue addressing these issues directly so our users can own their identities.
We took 1 of these steps back in February.
Data when we announced the appointment of Gary EV to the board of directors with more than 25 years of experience. He brings a deep domain knowledge and directly applicable cyber security expertise to aware.
Internally, we're also onboarding critical leadership and support staff to identify areas of focus as we work to build a proactive.
Plan to mitigate risk and deliver a high quality assurance to our customers.
This is a pivotal moment for aware with firsthand validation of our organic and inorganic hybrid growth strategy alongside a growing pipeline, we have a great deal of optimism for our future outlook. We are looking forward to the rest of the year.
Actively that a multi pronged transformation strategy and implementation that we rolled out during our first call in February has begun to materialize and is in full swing.
All of US at aware excited about what is ahead and we are grateful for your support as we navigate it together.
With that we're ready to open the call for questions Matt.
And please provide the appropriate instructions.
Yeah.
Okay.
Thank you Bob.
As a reminder, you can submit a question using the built in ask a question feature in the webcast player.
Please hold while we.
Populate the questions.
First question is.
Can you elaborate on the scope of business opportunities, resulting in the apex acquisition, you mentioned beds being reviewed that wouldn't have been without the street cred of Asics, what do you mean by that Bob.
Thanks, Matt.
While the global law enforcement.
The market is over $10 billion.
And the acquisition of a fixed provided aware with a strong customer base of over 180 agencies to enable us to grow our market share.
And so both apex, Andy aware avis products so.
So by combining both of the product families and leveraging the expertise.
Curtis of the pay fixed team.
We're able to serve the avis needs in both large small.
And medium addressable markets, which is addressed.
Estimated around a couple hundred million dollars.
But prior to the eighth ex acquisition.
We wouldn't get a shot at presenting our solution because.
Because of basic reference requirements of the tenders you know so we had to describe active deployments customer references.
And with the a fixed fully integrated.
Into the <unk> family.
We're able to lean on those deployments and we call them Street cred.
To continue and use the same word.
It passes the initial gatekeeping round of reviews. So once we're past the gatekeeper, we've been able to highlight how valuable aware Avis is and we are in active discussions around potential deployments of the offering.
It's helped us a lot get us in the door in a bunch and then it's also helping us expand in that area as well.
Great. Thanks, Bob venture capital dollars have poured into biometric how does aware intend to compete with these new competitors.
Okay, well, that's a that's a great question thanks for asking.
Let me kind of.
Step back a little bit and put it into the competitors that were really.
Looking at so the.
The bigger players in the end to end identity providers like the large companies that are well established and have established solutions market share. That's a category..1 then.
And then you've got the point solution or the use case providers, 2 and then the new entrants and small companies.
And so what we.
What we're seeing is a lot of private equity and venture investing in the last 2 areas.
And as we monitor the market, we're seeing new entrants or small companies falling into.
1 of 3 areas and this is where we compete differently.
Is the use case specific entrance so.
That's a company that identifies a particular problem focused.
<unk> a specific purpose using biometric technology.
And you've got a couple of other companies that are entering focus on vertical markets.
Pick a specific or a single vertical and focus on addresses many use cases as they can for biometrics in Nevada.
Vertical.
The.
The innovators are inventors these entrants have a breakthrough of core <unk>.
New technology very feature focused.
And look for ways to commercialize our new technologies.
So.
Interestingly enough these.
Entrants are critical to the grid.
Industry, and bring useful and new perspectives to it.
But they also need time to mature and validate their business models and address risk, it's not easy to take market share from well established players already in production and so we have deep production routes.
Along with deep.
You know references.
<unk> of credentials as well.
So with that.
We look at the competitive pressure of.
The new entrants to give us some emphasis for continuous breakthrough innovation.
Along with introducing monetization of that so we.
We.
In college there'd be a resource by the V season, and are forced to be reckoned with.
But they also.
Enable us to help validate the market.
And the credibility within the market that we're in.
We realize that there's a long road to viability of monetizing an idea that comes.
So these new entrants will be challenged to find the right business model.
Do they have the right model do they have the right pricing.
We at aware have tested our markets.
And we've established a good understanding of these challenges, we also manage and evaluate new entrant technology compare relative.
<unk> performance.
And we have.
<unk> is dedicated to the research to retain our leadership.
But we also have access to voice of the customer through our installed base and through other market research that we do provide the thought leadership.
And so we focus.
On an adaptive competitive model.
We remain as nimble as possible.
To compete by adapting to the needs of the marketplace. So a couple of as we go you can see there's different modalities and single modality that come in.
And I know this is a long answer but.
It is helping to validate our market.
They're funding companies in the space suggests that there's good promise.
But we're focused on not just 1 particular single.
Modality or area, but across the.
The board and that is helping us.
Again secure customers and in this.
Water and then into the future.
Pending the base that we've already established with additional modalities and additional capabilities.
I know, it's a long answer, but there was a lot to that but.
So it's a good and it's a bad but mostly on the good side because it.
Validates the market that we're in and keeps the market journey.
Thanks, Bob number of questions were submitted around the potential sale of the building in Bedford.
Instead of reading them all individually.
Dave can you provide more color around the potential sale of the building in Bedford and the status to date.
Yes of course, Matt.
So.
For Sun.
We have been evaluating our office space.
And looking to optimize.
Because we've been under utilizing the space that we currently have and are building.
Which is about 72000 square feet or so.
And earlier this year back in January February we received 2.
Listen it offers to purchase the building.
So at that point in time, we.
Work with the broker and we did diligence on both of the companies we did some diligence.
On.
The surrounding area.
And what buildings, where we're going for.
And we also talk to several companies are with sale leaseback offering.
Got it and then we opted to sell 2 fts Bedford.
And then in April we signed the purchase tail agreement that are we.
Posted last quarter.
Sure and in Fts Bedford then.
Submitted to our building as part of a proposal. It was our extensive proposal for a government procurement and debt proposal is sorry that procurement is still ongoing and we await the outcome and the.
The closing of our P&L will be dependent on an award to Sds Bedford.
So if we get a successful sales building.
Eventually aware will move to nearby lease space.
And we're currently checking out options in the neighborhood, we don't plan.
And to move far.
With the expectation that we will remain cost neutral.
Our operating costs of the new lease space and and net of term building should be roughly similar but we of course will benefit from mitigating any significant capital expenditures.
We see coming down the pipe in the a and R.
Aging building office building.
However, there is no guarantee that we reach closing on this <expletive>, because FTF Bedford still needs to win the bid.
Hope that helps.
Thanks, Dave our next.
And what was subscription revenue this quarter versus <unk> 20, and how much of that subscription revenue was the upfront recognition of annual minimums.
Yeah, Great question Matt.
So we are now disclosing our subscription revenue in the footnotes of the 10-Q.
So you can find the numbers there.
3 of 2020, we had a bit over 300000 of subscription revenue and year to date were at $1.1 million.
And the same year ago period, where we were about a bit.
Over 100000.
Question Q2 of 'twenty 'twenty and for the 6 months period of 2020, it was a bit under 300000.
And every quarter.
We'll likely have some amount of our minimum.
Prepayment recognized but.
In Q2 of 2021.
We were under 50 K.
Thanks, Dave Our next question you mentioned inorganic opportunities in the press release can you provide more color on the inorganic opportunities you are seeing.
Yes, Matt.
I mean, the only thing I am willing to say or talk about at this time that we're exploring all the options that advance us in the market. So overall in the areas.
Keep us current and advanced so without getting specific that's that's the best I can say at this point.
Got it thanks Bob.
Matt a question is will the company ever consider providing long term forward guidance.
Dave you want to take that 1.
Sure.
And at this point in time, where we don't anticipate providing long term guidance.
If you know anything is possible, but yeah right now it's not the case.
Yeah.
Great. Thanks, Dave at this time. This concludes our question and answer session. If your question wasn't answered please email aware of IR team at AWS.
At Gateway IR Dot Com I would now like to turn the call back over to Bob for closing remarks.
Well I want to thank everyone for joining us on today's call.
Also remind you that you can learn more about our strategy on the investor presentation.
It's available on our website.
And as always I want to thank.
Our employees partners and investors for their continued support and we look forward to updating you on our next call.
And with that over to Matt.
Thanks, Bob.
I would like to remind everyone that a recording of today's call will be available for replay via link available in the Investor section of the company's website. Thank you for.
You already today for aware second quarter 2021 earnings Conference call you may now disconnect.