Q2 2022 Aware Inc Earnings Call
Good afternoon and welcome to our second quarter 2022 conference call. Good afternoon.
Joining us today is the company CEO and President Robert Echel and Corporate Controller David Traverse, Billing in for our CFO David Barcelo, who's on vacation.
Following the remarks, we'll open the call for questions. We'd like to submit a question. You can do so at any time using the built in ask to question feature in the webcast player. The 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 awareness 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. We want to Episode 5 of the
This paragraph emphasizes the major uncertainties in risk, inherent in forward-looking statements that management will be making today.
I wish to caution you that there are factors that could cause actual results to differ materially from those results indicated by such statements. These risks and uncertainties are also outlined in the company's SEC filings, including its annual report on Form 10K and quarterly reports on Form 10Q. Any forward-looking statements should be considered in light of these factors. Your caution not to place undue reliance upon any forward-looking statements which speak only as of the date made. Although it may voluntarily do so from time to time.
information presented in compliance with CAP.
Accordingly, Aware has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in the company's 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'd like to turn the call over to Aware CEO and President Bob Eccles. Bob.
Thanks Matt.
Good afternoon everyone and thank you for joining us today.
After the market closed, we issued a press release announcing our results for the second quarter and did June 30th, 2022.
A copy of the press release is available in the investor relations section of our website.
We're glad that you could join us today for this quarterly update on AWARE. On today's call, I will discuss the progress we're making transforming our business to a subscription-based model and share some points that demonstrate our continued execution on our long-term strategic growth plan to drive scale.
Afterwards, our Corporate Controller, David Traverse, will provide additional details on our second quarter in year-to-date financial results. David is filling in today for our CFO Dave Barcelo who had a prior personal commitment and unfortunately could not be with us on this call. After David's section, I'll then review our 2022 business drivers and outlook. Lastly, we'll open the call for your questions. Lastly, we'll open the call for your questions.
To begin, in the second quarter we delivered $4.2 million in top-line revenue, despite a challenging economic environment.
We are not immune to the negative impact caused by the current macroeconomic issues that are being reported in the news.
Fire inflation, increasing interest rates, and supply chain shortages are headwinds for purchasing decisions.
As such, some companies are reviewing investment timing for changes in their existing workflows.
Furthermore, in the financial services markets specifically, two of these issues often result in fewer bank accounts being opened in fewer credit applications.
which consequently slows the growth of our onboarding and authentication solutions that target mobile banking.
Nevertheless, our biometrics-based solutions that address fraud prevention have seen particularly strong momentum with financial institutions in Latin America and Europe .
Aware has already secured some of the largest banks in Brazil and Mexico and three of the largest banks in Turkey.
and we expect to continue adding customers in the financial services market through our partnerships with strategic resellers.
As we have previously mentioned, expanding the number of strategic partnerships is one of our top priorities in 2022.
These partnerships enable us to leverage our expertise and expand our sales opportunities without adding additional expense to our P&L.
Throughout the second quarter, we continue to add strategic partners that expand the global reach of our biometric-based solutions.
Our focus has been on working with value-add resellers of wires.
and integrated product resellers and enterprises who can drive the adoption of our subscription-based offerings.
thereby setting up the base for our recurring revenue.
which in Q2 represents 49% of our total revenue.
It does take time for these customers to ramp up to their integrated solution into full production. We typically see it takes anywhere from 6 to 18 months.
and in the current macro environment many customers are looking to safeguard their cash. As a result, some customer launches are being delayed until the market conditions improve. Having a robust cash position in this current macro environment is an asset.
Fortunately, we are supported by a strong balance sheet that enables us to withstand this current market volatility.
Furthermore, we recently strengthened our balance sheet with the sale of our office building in Bedford, Mass. for $8.9 million.
After accounting for transaction related expenses, we received $8.6 million in net cash.
This additional capital provides us with the flexibility to invest in our long-term organic growth strategy and to pursue any strategic, inorganic investment opportunities that are aligned with our business expectations for our current portfolio and new SaaS-based
On a final note, we recently showcased our leading edge authentication solutions at three major industry trade shows, and the enthusiastic response from attendees gives us confidence that our product roadmap is on track.
The use of biometrics on boarding and authentication continues to gain strength and adoption all over the world.
In summary, AWARE has demonstrated resilience in the face of the negative impact of recent macroeconomic issues facing the overall economy.
is demonstrated by revenue year-to-date growth as compared to last year and have a strong cash position to whether it headwinds.
We are focused on growing the overall number of partnerships with VARS and integrated resellers and enterprises to accelerate customer adoption of our biometrics-based solutions and expand our recurring revenue base.
We continue to execute our multi-pronged strategy as we enter the final phase of our transition to a platforming company.
Now, before discussing our focus and business drivers for the remainder of 2022, I'll turn over the call to David to walk us through our financial results for the second quarter.
David, over to you.
Thank you, Bob, and good afternoon to everyone on the call.
Turn to our financial results with the second quarter and ended June 30, 2022.
Total revenue was $4.2 billion compared to $4.7 million in the first quarter of 2022.
at 4.3 million in the same year ago period.
Year to date for the six months ended June 30, 2022, our total revenue was $8.9 million, up from $8.7 million in the same year ago period.
As Bob mentioned, the slight decrease in our second quarter revenue over the prior year period.
was primarily the result of supply chain delays. Resulting a few orders from our OEM partners to help me provide software for the biometric devices. Resulting a few orders from our OEM partners to help me provide software for the biometric devices. Resulting a few orders from our OEM partners to help me provide software for the biometric devices. Resulting a few orders from our OEM partners
Looking at operating expenses, for the second quarter of 2022, our operating expenses decreased 4%.
the 5.6 million of 5.8 million in Q2 of last year.
The $200,000 decrease in operating expenses was due primarily to slightly lower R&D and sales and marketing costs.
For the six months ended June 30th, 2022, our operating expenses were $11.6 million.
compared to the prior year period.
The corresponding operating loss with the second quarter of 2022 was 1.35 million.
and improvement from an operating loss of 1.54 million in the same year go period. In the same year go period.
The year-over-year improvement in operating losses are primarily due to lower total operating expenses. The year-over-year improvement in operating losses
Operating loss for the six months ended June 30, 2022 was $2.6 million, a 12% decrease compared to the prior year period.
For the second quarter of 2022, gap net loss totaled $1.3 million, or $0.06 per diluted share.
compared to a cabinet loss of 1.5 million or 7 cents per diluted chair.
Same year, go period.
Gap net loss for the six months ended June 30th.
2022 totaled $2.6 million, or $0.12 per diluted share, compared to a gap net loss of $3 million, or $0.14 per diluted share in the same year or go period. Our adjusted EBITDA loss for the quarter, which reconciled the gap net loss in our earnings release, totaled $800,000, which is flat compared with the same year or go period.
for the six months ended June 30th, 2022, adjusted EBITDA loss total 1.4 million.
compared to an adjusted Ebola loss of 2 million in the prior year period.
Looking at our balance sheet, we had 25 million in cash and cash equivalents at the end of the quarter. We had 25.1 million at the end of the prior quarter.
In the week following the close of the second quarter, we completed the sale of our office building bed for Massachusetts.
to receive 8.6 million net cash proceeds. In this challenging macro-environment, we believe our strong cash position is an asset.
We strive to maintain a robust cash position that provides us with the flexibility to resourcefully allocate capital to opportunities with high ROI potential.
Considering current evaluations, we continue to actively evaluate strategic opportunities that align with our long-term growth plan and product roadmap that would enable us to drive scale as an organization.
This completes my financial summary.
Now I would like to turn the call back to Bob, for digital insights.
on our key initiatives for the rest of 2022 and beyond.
and beyond. Bob?
Thanks David.
Our business model transition from a book and ship company to a platform company with a strong base of recurring revenue derived from software subscriptions and related maintenance continues to make steady progress.
The final phase of our transformation, the launch of our cloud-based adaptive authentication platform, remains on track for the second half of 2022.
and we remain focused on accelerating our growth and expanding recurring revenue of our existing portfolio.
In order to achieve this expansion in revenue, we're focused on three objectives in the second half of 2022 and beyond.
First, our partnerships with indirect resellers remains vital.
We expect partner-led sales to increase our operating leverage for our current offerings.
as we introduce and accelerate the scalability of our SAS platform. So where are we focusing our emphasis around these accounts?
Second, as a result of recent macroeconomic factors, we are seeing end users stay in the proof of concept and pilot stages of their deployments for longer than planned or anticipated. For longer than planned or anticipated.
To address this and ultimately accelerate a WERE'S platform adoption, we have begun to increase our efforts around customer success.
Having a strong customer success team is crucial as we focus on driving faster adoption and move to a SaaS-based business model to drive recurring revenue.
Particularly because end users often lack biometrics expertise.
For many biometrics is a real cultural change.
It requires a mind shift. As part of these customer success efforts, we are increasing the time we spend with our partners and customers to enable them to leverage benefits of biometrics. The benefits of biometrics.
and specific advantages of the Aware's Bimetric based solutions.
And third,
We are transitioning from a chief commercial officer to a chief revenue officer.
As noted in last week's 8K filing, our Chief Commercial Officer, Robin Govon, will be leaving aware on August 31st.
Rob has certainly made an impact over the 25 years he's been with the organization and has helped shape aware into the company it is today.
We cannot thank him enough for his contributions and wish him all the best in the future.
It is important to note that we will be anticipating incurring some one-time expenses in Q3 due to this departure.
I am pleased to share that we are in the final stages of hiring a Chief Revenue Officer with a strong background in commercial SaaS and sales operations to lead aware sustainable revenue generating efforts including business development, sales, partnership programs, account management, and customer success.
By shifting from a CCO to a CRO and emphasizing strategic account management, as well as leading organizational alignment to scale the business.
supported by enhanced customer success initiatives, we'll be even better positioned to accelerate revenue generation from our existing product lines and new SaaS offering.
These three actions when combined with the continued execution of the final phase in our business model transformation are what drive our confidence in our expected 2022 performance.
We're encouraged by the progress we've made in our transition. We still have work to do, but like many other companies, we are impacted by the current macroeconomic environment.
Fortunately, we benefit from having a diversified mix of customers.
we benefit from having a diversified mix of customers, resulting in a balanced revenue mix.
A product portfolio offers a broad range of biometric space solutions that can address the requirements of government customers as well as commercial customers.
In summary.
Our top priority is increasing our operating leverage from our partnerships and our efforts around customer success to facilitate faster adoption and full production of our advanced authentication solutions and drive the growth of our integrated offerings and SaaS platform.
Our robust cash position, made even stronger with the proceeds from the sale of the Bedford Building, provides us with stability in this challenging economic environment.
while also giving us the flexibility to continue executing our multi-prong growth strategy.
including permanently investing in the highest return on investment opportunities that align with our business objectives in long-term growth plan, whether organic or inorganic.
We continue to anticipate achieving adjusted EBITDA profitability in 2023. The exact timing is still unknown and is dependent on macroeconomic conditions.
We remain confident that we can continue increasing our recurring revenue base in top line growth. We remain confident that we can continue in top line growth.
The team at Aware appreciates your continued support and we look forward to what is ahead for our company and industry. With that, we are ready to open a call for questions. If you have any questions, please provide the appropriate instructions.
Thank you, Bob. As a reminder, you can submit a question using the built-in ASC a question feature in the Webcast player.
We told what we populated the question.
First question is for you, David. What is the impact of the building sale to your cash position?
Thanks Matt. With the $8.6 million in net cash that we received from the sale of the Bedford building, we were able to add that to our already star-on-cast position of $25 million as of the end of the quarter.
From a tax perspective, there's no capital gains tax on the sale, and it will be at the game from the sale of the building net of our disposal will be included in the ordinary income or loss at the end of the year.
Thanks, David. Bob, you mentioned anticipating some one-time expenses in Q3 due to the transition from a CCO to a CRO. Can you approximate those one-time costs?
Specific employment agreements are available on our latest proxy statement that were filed with the FCC in April of 2022. And specific to Rob Mungoven, a copy of the amendment to the agreement was included in the AK file month July 20th. The amendment was included in the AK file month July 20th.
Bob, another one for you. When do you anticipate hiring a new CRO? Breast &
We made an offer to a candidate and the individual is accepted.
And we have an expected start date in early August .
And if all goes to plan, the new CRO will begin to work with Rod MacLovin to ensure a successful transition.
This person comes to us with extensive experience in driving revenue in several areas such as enterprise software staff and partner sales. This person comes to us with extensive experience in various areas such as enterprise software
And we'll be holding off on sharing any further details about the incoming CRO until after an official start date, at which time will issue more descriptive announcement.
Take bubts.
Didn't mention your expected growth rate. Are you scaling back your guidance?
Based on our current pipeline and visibility, we expect to grow our top line in 2022 along with our recurring revenue.
However, given the continued macroeconomic hit points that we mentioned in the prepared remarks,
We don't think it's prudent to commit to a specific growth rate.
for the year because we're not sure how much more impact these macroeconomics headwinds will have on our customers and their buying decisions.
What has your patent count decreased?
Between 2020 and 2022, the patent count was reduced to remove unnecessary jurisdictions and or deviations while maintaining one or more US patents within each affected patent family. The patent count was reduced to remove unnecessary jurisdictions and deviations while maintaining and deviations while maintaining one or more US patents within each affected patent family.
And the optimization of our portfolio is reduce our maintenance cost by two thirds from approximately 360,000 yearly to approximate 90,000 per year with no sacrifice in any value.
And furthermore, our introduction of multiple trade secrets into our IP portfolio and process.
refines the process by which we guard those trade secrets. So we position the business for better protection without adding any costs, and then we continue to grow our bank of trade secrets.
and also new patent applications when critical and breakthrough technology is fully aligned with the future of the business.
Thanks Bob. Thanks question. How confident are you in your ability to be cash-breaking and on an operating basis by the end of next year? Does the macro environment push this out into 2024? Does the macro environment push this out into 2024?
We're managing the macro environment the best we can, and we still anticipate we'll cross over to adjusted eBusNop profitability by the end of 2023.
And again, I'll reiterate, although the exact timing is unknown at this point.
So, next question, any color you can add on your capital allocation board.
All I could say is that we're fortunate to have a strong cash position that enables us to invest in the highest return on investment opportunities that are lined with our product roadmap in our long-term growth plan.
And it doesn't matter if those are organic or inorganic, we're looking at both.
And I don't plan on getting into specifics prior to our general market announcements in this area.
Next question is for you, David. Did you did a where make any sharey purchases in the second quarter? In the second quarter.
Yes, we did purchase a novel number of shares, and we'll continue to purchase shares in line with the approved. In line with the approved... In line with the approved...
Shear Repression Program that has been set.
Thank you.
Why was Rob McGovern terminated?
Well, as I stated earlier, we're re-aligning the organization a shift from a CCO to a CRO. We're re-aligning the organization a shift from a CCO to a CRO.
This result in the elimination of the chief Commercial Officer position.
And then with this realignment, we'll be emphasizing strategic account management ordered by enhanced customer service.
and customer success initiatives, putting it in a better position to grow revenue from the existing product lines in the new SaaS offering.
And as I stated earlier, Rob certainly made an impact over 25 years, and we can't thank him enough for what he's done.
Thanks Bob. As Kurt Mackle, macro change your hiring plans or sales strategy.
The current macro environment hasn't.
Has not changed our hiring or sales strategies mentioned in our prepared remarks. We strengthen our focus on customer success
through strategic hires and internal reallocation of resources.
so we can guide our customers into full production and get them into their adoption.
We remain well-positioned implement or any personnel changes that we need to do and identify them.
And we anticipate the incoming CRO will have input into both hiring and sell strategies, and we're prepared to work with them on it.
Bob, next one is regarding our SaaS offering. How many customers are trialing when can set in the SaaS offering be a meaningful contributor?
Well, right now we currently have a dozen or so select customers that are trialing the fast platform and they're providing us some great feedback and we're adding more as we speak. That trial's been going on for a couple quarters now with more coming on.
Their constructive feedback has been overwhelmingly positive and very helpful in our quality assurance process we can share an optimal user experience as well as us. enthalphe
basic needed baseline functions.
And we're on track for our SAS offering in the second half of the year relative to general availability. And we believe it'll be meaningfully contribute to our revenue on FY 2023. Review the Great.
Dave, the next one's for you. What was the description of revenue?
Year to date, the subscription revenue has been 1.7 million and that compares to 1.1 million last year.
Next question for you, have you seen deal activity slow because of the macro?
As I mentioned before, we are definitely seeing some impact of the closure of some deals through the macroeconomic situation. But in general, we are seeing some impact of the closure of some deals through the macroeconomic situation.
commercial applications,
some companies evaluate the timing of their investment decisions.
Commercial budgets, as we know, can be more discretionary. In contrast, on the government side, the budgets are more in line with the longer-term plans they're in place and decisions and must be executed on. Regardless of the environment.
Yeah, we are seeing some deal activity slow. However, we have a diversified customer mix, and it's allowed us to maintain an increased revenue, including recurring revenues, percentage of the overall. Your date is compared to last year. Your date is compared to last year.
Thanks, Bob. This time, this concludes our question and answer session. If your question wasn't answered, please email the AWARE's IR team at awre.gatewayir.com.
And now I'd like to turn the call back over to Bob for closing remarks.
Well, I want to thank everyone for joining us today on this call.
I'd also like to remind you all about the investment presentation that's available on our website. If you haven't already downloaded it, I invite you to do so to learn more about our overall strategy.
And as always, I'd like to thank our employees, partners, and investors once again for the continued support. And we look forward to updating you on our next call. Over to you, Matt.
Thanks, Bob. A recording of today's call will be available for replay via a link in the investor relations section of the company's website.
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