Q4 2021 Aware Inc Earnings Call
Good afternoon.
Welcome to <unk> fourth quarter, and full year 2021 earnings conference call.
Joining us today is the company's CEO and president Robert Eckel at CN.
So David Barcelona, following their remarks, we will open the call for questions.
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 we begin today's call I'd like to remind everyone that the presentation. Today contains forward looking statements that are based on the current expectations of <unk> 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.
Aware wishes to caution you that there are factors that could cause actual results to differ materially from the results 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 .
Our quarterly reports on Form 10-Q .
Any forward looking statements should be considered in light of these factors you are cautioned not.
Undue reliance upon any forward looking statements, which speak only as of the date made.
Although it may voluntarily to 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 that term is defined by the SEC regulation G. non-GAAP financial measures should not be considered in isolation from or a substitute for financial information presented in compliance with GAAP.
Accordingly, our has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure in the company's earnings release issued today.
Like to remind everyone that this presentation will be recorded and made available for replay via link available in the Investor Relations section of the company's website.
Now I'd like to turn the call over to where our CEO and President Paul back Bob.
Thanks, Matt.
Good afternoon, everyone and thank you for joining us today.
After the market close we issued a press release announcing our results for the fourth quarter and fiscal year ended December 31 2021.
A copy of the press release is available in the Investor Relations section of our website.
We're extremely excited joining here today to review <unk> financial and operational progress as we continue to execute on our growth strategy and business model transformation, we are becoming increasingly bullish about the near and long term prospects of the company.
I'll start with a brief review of our 2021 accomplishments and discuss how aware is well positioned for meaningful growth in 2022 and beyond that.
And then our CFO , Dave <unk> will review, our financial results for the fourth quarter and full year 2021, afterwards I'll provide insight on our go forward strategy and initiatives for 2022 Lastly, we will open the call for questions.
Our 2021 performance reflects the early success of our three part transformational growth strategy and validates that we are on the right track there.
This past year was highlighted by material growth and infrastructure improvements solidifying the foundation in enabling aware to scale and capitalize on increasing tailwind any authentication industry.
We delivered $16 9 million in total revenue.
<unk> the highest annual revenue level in the last five years. Additionally, within that topline revenue our recurring revenue grew 46% year over year and our subscription revenue more than doubled Dave will get into the financials in more detail momentarily.
In 2021, we strengthened our core offerings and our delivery and support systems. This enabled sales expansion, while preparing to launch our new SaaS offerings. We expect our December acquisition of fortress identity, a pioneering provider of digital I'd verification and biometric authentication.
To accelerate the time to market of our aware I'd SaaS platform.
Providing a solid foundation for long term growth going forward.
In particular.
<unk> cloud native platform fortress I'd.
Users biometric multifactor authentication to combined Onboarding validation and due diligence for compliance and risk management.
Second it expands our offerings for electronic know your customer or <unk> applications and provides a strong foothold in cloud based service offerings.
These include compliance and risk management for secure digital identities.
The acquisition accelerates, our SaaS transformation by offering a rich portfolio of risk management authentication solutions for secure financial processing and data breach prevention.
Lastly, it enables us to expand our strategic relationship with new partners and new customers around the world.
Through the integration of <unk> and the continued execution of our three part growth strategy. Our focus is now on accelerating growth and expanding recurring revenue.
Before discussing our initiatives for 2022 and beyond in more detail I'll turn the call over to Dave who will walk us through our financial results for the fourth quarter and full year, Dave over to you.
Thank you Bob and good afternoon to everyone on the call.
Let's turn to our financial results for the fourth quarter and fiscal year ended December 31 2021.
Our total revenue in the fourth quarter was $4 million up 17%, but $3 4 million in the same year ago period.
For the full year ended December 31, 2021, our total.
Total revenue increased 49% to $16 9 million from $11 3 million in the same year ago period.
And looking at our operating expenses for the fourth quarter of 'twenty, one our operating expenses increased 5% to $5 5 million from $5 3 million in Q4 of last year.
For the full year of 2021, our operating expenses increased 11% to $23 million from $20 7 million in the same year ago period.
The quarterly and full year period increases in operating expenses were primarily due to higher sales and marketing.
As well as some general and administrative costs related to infrastructure Buildout.
And the fourth just say Danny acquisition in Q4.
The corresponding operating loss for the fourth quarter of 2021 was $1 5 million an improvement from an operating loss of $1 9 million in the same year ago period.
The year over year decrease in operating loss was primarily due to higher revenues.
Operating loss for 2021, with $6 1 million compared to an operating loss of $9 4 million in the prior year period.
The decrease in operating loss is primarily primarily the result of higher revenues and partially offset by increases in operating expenses.
For the fourth quarter of 2021, GAAP net loss totaled $1 3 million or <unk> <unk> per diluted share compared to a GAAP net loss of $1 6 million.
Or <unk> <unk> per diluted share in the same year ago period.
GAAP net loss for 2021 totaled $5 8 million or 27 cents per diluted share.
This was an improvement compared to a GAAP net loss of $7 6 million or <unk> 35 per diluted share in the prior year period.
Our adjusted EBITDA loss for the quarter, which can be reconciled to GAAP net loss in our earnings release.
Totaled.
$9 million.
This compares to adjusted EBITDA loss of $1 4 million in the same year ago period.
For the full year of 'twenty, one adjusted EBITDA loss totaled $3 8 million, which was a significant improvement cutting our losses in half from an adjusted EBITDA loss of $8 million in 2020.
Looking at our balance sheet, we had $30 million in cash and cash equivalents at the end of the quarter compared to $33 3 million at the end of the prior quarter. The decrease in cash and cash equivalents was primarily due to our acquisition of fortress identity.
Aware maintains a strong industry T J cash position that enables us to allocate capital to high ROI opportunities. We continue to actively evaluate strategic opportunities to drive growth and scale as an organization.
Organically, we have seen significant growth from our nomi subscription accounts, we recorded 42 million transactions in 2021.
250% year over year increase the.
The growing transaction volumes that test to the strength and scalability of the <unk> product line, which is paving the way for the future growth as new customers onboard in overall usage increases.
This completes my financial summary, now I would like to turn the call back to Bob for additional insights on key initiatives and priorities for 2022 and beyond.
Bob.
Thanks, Dave.
For those of you who may be new to our company, let me step back for a moment and provide a brief overview of who we are and what we do.
Aware as an authentication company, we're driven to create a world where you own your identity.
Our mission is to solve everyday business problems using proven and trusted adaptive authentication.
When I joined aware in late 2019, the company was effectively a book and ship company with strong legacy offerings and supporting services, but it had an outdated business model.
Even still I was convinced aware had a great future because of four key elements.
People its products its financials in a market that was looking to solve everyday business problems, while improving privacy security and data protection in a way that is low friction and can often be controlled by the individual.
Not to mention the growing adoption and acceptance of the biometrics just to do that.
I am excited to say, we have a great outlook for next year and beyond and we've made significant progress to date.
When I joined.
I started to where on a three part transformational growth strategy.
As I shared with many of you during our earnings calls and discussions of our Investor presentation.
We shifted the company's focus to concentrate on our core offerings bring them up the value chain and capitalize on the market trends and biometrics and authentication in general.
Like increased adoption.
Acceptance and use of the emerging infrastructure.
We centered on our core markets, but we also penetrated new growing in emerging markets.
And we emphasized establishing leverage into the offering model building recurring revenue streams and moving towards high margin subscriptions over individual perpetual licenses.
As part of this growth strategy. We are now two years into a three year transition to a subscription model.
Our 2021 financial results show the success, we've had in growing our product sales and partnering with resellers and integrated product resellers to expand our reach they also show our clear focus around product lines and new product launches instead of just selling components and project services. The next step in our growth journey is emphasize.
<unk>, SaaS and increasing our intrinsic value as a business we plan to address this goal in 2022 in several ways.
Yeah.
The first is by strengthening our commitment to our key verticals for.
Since we have already seen success in these verticals, we plan to solidify our positioning with additional customers in these segments through targeted marketing and account management.
We also will be working to be more visible and make other accomplishments as we are able.
Is by driving indirect sales channel.
And markets and commercial resellers.
Okay.
That said in parallel.
Ships with integrated reseller.
And prime contractors for government initiatives.
The third is through our sales and marketing emphasis on our where I'd platform and cloud offerings.
Chris identity, a cloud native company and the subsequent integration fortress I'd into our SaaS offerings marks an important.
Step towards accelerating arc.
Cloud adoption.
Lastly, we are building a whereas intrinsic value through continued growth in 2022, we expect to exceed the growth rate of the biometric market and target.
20% topline growth positioning we expect recurring revenue in the commercial market sales become a greater.
Part of our total revenue in 2020, we've built a scalable platform. So the.
Growth continues as our expenses flat.
To optimize our organizational effectiveness as such we are targeting to exit 2023.
Cash flow neutral to cash flow positive.
Committed to executing on our growth strategy and achieving scale.
Both organically and Inorganically.
Top line of $30 million to $40 million.
Next two to three years capital scalability and market tailwind.
With a robust balance sheet.
<unk> in particular.
We look for opportunities that will further accelerate our growth are immediately accretive and are synergistic with and advance our product roadmap.
We place particular emphasis on valued SaaS offering, but elevated but that doesn't mean, we wouldn't have.
Acquire strategic growth at a reasonable price.
Nonetheless, we will remain prudent with our capital and ensure we stay in line with our strategy.
In slide 49% in 2021 and.
And are targeting to grow grid.
Our focus on building recurring revenue streams and transitioning to a subscription centric model.
Enable us to deliver 45% growth in recurring revenue and we enter more of our total revenue in 2000.
In 'twenty two.
We are demonstrating the leverage of our revamped infrastructure and operating model reflected by almost 50% topline growth contrasted with a 10% increase in operating expenses. We believe we will be able to cross over to EBITDA profitability in 2012 timing can't be predicted.
And we have a strong balance sheet to execute our growth strategy and to act on strategic opportunities that will allow us to scale more rapidly.
Hey.
In short we are bemis focus on growth.
On a personal note.
I continue to be focused on the big picture and long term outlook and I'm excited for the opportunities we have in the works and the progress we've made so far.
An increasing number of companies and governments across industry verticals and geographies are adopting biometric systems to authenticate and secure their employees and their customers' digital identities.
<unk> achieved several financial and operational milestones in 2021 to capitalize on these market trends and we expect to capitalize on those 2021 achievements in 2022 as we further demonstrate our expertise in using biometrics for authentication.
We have strong operational momentum and are focused on the execution of our growth strategy and a realization of a subscription revenue model.
We are leveraging our business transformation into a platform and SaaS company to position ourselves for sustainable future growth, we remain confident in our ability to deliver solid results in 2022 and beyond.
All of US are we're excited about what is ahead for our company and industry and we appreciate your continued support.
With that we're ready to open the call for questions. Matt. Please provide the appropriate instructions. Thank you.
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.
Hey, Bob before we get to questions you've gotten a couple mentions of choppy audio during the summer. He can you repeat your summary points.
Yes sure.
Summary points, we go into 'twenty, one and we're targeting to grow greater than 20% in 2000.
Okay 22.
Our focus on building recurring revenue streams and transitioning to a subscription centric model innate.
Enabled us to deliver 45% growth in recurring revenue.
Recurring revenue to account for more than.
More of our total revenue in 2022.
We're demonstrating the leverage of our revamped infrastructure and operating model.
This is reflected by almost 50% topline growth contrasted with a 10% increase in operating expenses.
We believe we will be able to crossover to EBITDA profitability in 2023.
So the exact timing cannot be predicted.
And we have a strong balance sheet to execute our growth strategy and that will allow us to scale more rapidly.
In short, we're bullish on our future and the entire team as well.
Thanks, Bob are you seeing any change.
Syed.
Matt.
Overall deal size Hasnt changed significantly.
The transformation from perpetual licenses to a subscription model.
Definition does spread out the size of a deal over a different period of time.
So can't be compared apples to apples on the financials.
That said, we're still seeing total contract values fall within the typical range that we've been used to and.
In addition, we're also seeing existing customers with a given total contract value come back and add more to their deal size, because they're happy with our product and are seeing higher than anticipated adoption rate by their customers.
Thanks, Bob next question any update on your SaaS offering.
Good question, we've got initial customers reviewing it as well as using our offering.
And now we're looking at a combination of sports you said our initial customers.
Together to ensure that our offering is addressing the problem and there are use cases that.
Our next question how many customers are you trialing with.
Good day.
Any customer that fits our criteria.
Our current what I'll call multi tenant offering is welcome to try at the offer.
We're working with a selective set of prospective customers that are willing to provide us the feedback.
We're going to use to adapt.
Hence our offering.
Because we want the feedback is now.
Thanks, Bob.
Next question do you think the sales team is fully built out at this point.
Here's a question Houghton marketing team as our sales.
We also we're mindful of our current cost basis, which we believe we're in a reasonable place.
But part of our sales strategy is to partner with resellers integrated product. So we are continuing to invest.
Next question are you seeing any geographies or particular strength or weakness.
We've got strong traction in Latin America.
Also with the U S government.
We're also looking to strengthen our customer base in the.
The EMEA region, and the rest of the world where we.
We have been working with.
Several partners.
We will also continue to seek partners and expand our customer base beyond where we have to.
Footholds.
We believe in the benefits that biometrics can achieve so we're trying to leverage partners wherever we can given that we.
We don't want to set up.
Huge base of door to door salespeople.
Great. Thanks, Bob how should we think about opex ramping this year.
We don't expect any significant changes to the operating expenses.
Any changes we plan would grow in line with last year's percentages of approximately 10% to 15%.
Next question, we've received a couple of questions about Gnome transactions, where nomi transactions in Q4, how should we think about this ramping in 2022.
Well for the year.
We saw over 42 million transactions, but as we go forward, we're seeing traction both with user base and transaction based recurring revenue.
As a whole rather than categorizing net revenue is one or.
Another so we are getting request for user base.
As transact.
<unk> and <unk>.
And so we're going to look at the recurring revenue as a whole.
Thanks, Bob.
Roche deals out to the right.
Well, we are seeing still been seeing that effect from omicron for sure. It does.
<unk>.
And it impacts us a lot on their face to face activities.
It's hard to say what could have been done sooner.
Unless it is still a factor, especially with our face to face sales activities, but we are seeing.
And are able to start to get some more shows and more trade shows now.
Thanks, Bob next question, how does the 90 bps technology differ from hormone Morphic encryption.
Matt Thats pretty technical question I'll try to answer it the best I can.
Well more morphic encryption requires an encrypted computation be implemented inside encrypted database.
So the implication is that the biometric algorithms would be coded.
With the whole milk morphic encryption in the databases and restricted to the functions.
In performance supported by those algorithm.
And as such any improvements to the algorithm, which we know happens frequently would also require upgrades, bringing about risk and cost.
And we've seen this happen too frequently.
Some of our own.
Innovations that we deal with the old and suboptimal systems, because they don't want to deal with the impact of the changes.
So this model is.
Entre to our aspiration of sovereign identity and owning your identity because hormone morphic encryption comes through data hosting organization and they are the sole Walter.
<unk> provides a network based decentralisation approach to distribute the biometric data and activities across the network nodes and eliminates the shortcomings of the homomorphic encryption.
And so in our opinion the way we're doing it. So is the implication of decentralisation leads to better securing of the keys securing of the matching easy use of biometrics from the user on any device.
And considerably simplify the compliance related to data ownership and compliance requirement. So.
In the early stages there but.
But there is a difference.
Great. Thanks, Bob.
A few questions around the <unk> partnership can you tell us why it's good for aware and what's so exciting about it.
While we believe the partnership will enable customers to enjoy all the benefits of the latest biometric technology since it combines the <unk>.
<unk> best in class biometric technology in a non of bits approach to storing data throughout a vast peer to peer network and a form of anonymize bits.
So it gives the units there is in our opinion confidence that their individual biometric data cannot be stolen or compromised.
Okay.
Can you elaborate on the technical alignment between fortress identity and aware.
Yes.
The acquisition of fortuitous identity has enabled us to integrate their digital I'd verification platform.
<unk> IV into our own SaaS offering aware I D.
This expands our offerings around <unk> or know your customer electronic know your customer <unk>.
<unk> and aware ideal complementary platforms and enhanced each other's capabilities.
<unk> had a strong capability in risk management and online online onboarding.
Thanks.
Things that they did like due diligence checks were anti money laundering counterterrorism finance.
Politically exposed persons and aware idea has strong capabilities in biometrics document validation and the orchestration of Onboarding and authentication.
And by integrating <unk> into it where I'd customers have the comprehensive solution with more options to address digital onboarding and authentication. So they can choose how they want to do it.
Thanks, Bob.
A couple of questions on the stock buyback plan could you provide additional details on the <unk> five one plan that was filed today.
Okay.
Matt Let me take this one.
Okay.
As you mentioned, we filed an 8-K with our can be five one plan along with our earnings release.
We've implemented this <unk> one plan to support our common stock in a more systematic manner.
The share repurchase trading plan will permit our common stock to be purchased.
Times, when nowhere might otherwise be precluded from doing so or were under insider trading laws yourself imposed trading restrictions.
This can be five one plan is administered by an independent broker and it's subject to a preset price volume and timing restrictions that that we set with that broker.
So any actual repurchases under the rule <unk>, one plan will be disclosed in periodic reports.
<unk> will file under the Exchange Act.
No assurance as to the amount or the timing or the prices.
These repurchases Theyre, all based off of various market conditions and other factors and they are subject to the parameters that we set forth in the plan.
Thanks, Dave another one for you why isn't there more insider buying of <unk> stock.
Okay.
Okay. Thanks, Matt.
Where executives and our employee base participate in an employee stock purchase program, where we provide funds to purchase shares on pre determined date.
Since this is all pre determined our executives and our employees avoid potential overlap between purchasing shares and being in possession of material nonpublic information.
The filings are different for these type of planned purchases. So I can understand how this might indicate a lack of insider buying however, our team is confident in the future direction of the company as indicative by active participation in this plan.
Thanks, Dave you announced a 10 year lease does that mean the building has sold.
So yeah, we disclosed in today's 8-K on March 1st that we entered into an agreement to lease approximately 20000 rentable square feet in Burlington mass for term of 10 years and six months.
We'll intend to use this as our principal executive offices going forward.
The term of the lease commences on the date that the landlord notifies us.
The construction on the premises has been substantially complete.
Additional details on this lease can be found in our 10-K, when we file that for the year ended December 31 2021.
Not yet closed on the purchase and sale of our Bedford Office building, we expect that transaction to close prior to our next earnings call and it will be disclosed in an 8-K upon completion.
Thanks, Dave Q1, 2022, looking so far.
Okay.
Well, we think our overall performance and execution of our strategy is best measured on a 12 month period. So I'd encourage you and investors to focus on our annual guidance and our performance instead.
Thanks, Dave next question any color or context.
And private market valuations or the general types of multiples observed, perhaps six months ago versus where multiples generally appear to be at the moment.
Yeah. Thanks, Matt This is Ben.
A point of analysis for aware over the last 12 months.
The market valuations for.
Strategic initiatives that we're pursuing have been increasing over time and most recently in the last the last couple of quarters.
They've been extremely high.
I'd say probably.
10% to 20% higher than we were seeing at the beginning of the year.
Thanks, Dave next question can you give us a sense of the number of fortress I'd customers you acquired their size SMB large corporation et cetera.
Okay.
Yes, so fortress with nice little acquisition for us their customer base is fairly small, but aligned with the type of customers that.
We're interested in primarily financial institutions banks.
The customers were not numerous our acquisition was more aligned to the capabilities and the ability to.
To accelerate our aware I'd offering.
So our customer base was not the primary focus.
Okay.
Thanks, Dave Our next question you mentioned 30.
To $40 million in revenue in the next three years to four years can you get there organically or does that assume M&A.
Okay.
Yes, Thanks, Matt.
So our projections are.
Primarily focused on organic growth, we are taking a very opportunity opportunistic approach to M&A and as I mentioned valuations have been high.
So we're doing everything we can to reach those those numbers with.
Everything at our disposal.
How do you define recurring revenue, which line items are included within that.
Our recurring revenue is made up of our maintenance stream as well as our subscription stream both of which are disclosed in our financial statements.
And.
These these revenues are recurring on a annual basis for customers that are locked into.
Recurring.
Contractual terms.
Okay.
Thanks, Dave what was subscription revenue in the quarter, how much of that was upfront recognition of annual minimums.
Our fourth quarter subscription revenue was about half a million dollars.
And as we continue to execute and renew on customers. These annual minimums are more and more recurring so along those lines. We did not recognize the same type of spike that we did last quarter.
We anticipated.
Smoothing out as we go forward.
Yes.
Great. Thanks, Dave.
At this time. This concludes our question and answer session. If your question wasn't answered. Please E mail <unk> IR team at kw Rd at Gateway IR Dot com.
I'd like to now turn the call back over to Bob for closing remarks.
Thanks, Matt.
Now I'd like to thank everyone for joining us on the call today I'd also like to remind you that about the investor presentation. That's available on our website, we just updated that.
So if you haven't already downloaded it I invite you to do so and learn more about the overall strategy, especially some of you that are new maybe.
And I'd like to also as usual bank our employees our partners investors once again for their continued support and we look forward to updating you on our next call.
Matt.
Thanks, Bob a recording of today's call will be available for replay via a link in the Investor Relations section of the Companys website. Thank you for joining us today for <unk> fourth quarter and full year 2021 earnings Conference call you may now disconnect.