Q3 2023 Aware Inc Earnings Call
Good afternoon, and welcome to <unk> third quarter 2023 conference call.
Following management's 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 would 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.
Blitzer 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 several 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 10-K, and quarterly reports on Form 10-Q any forward looking statements should be considered in light of these factors.
You are cautioned 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.
<unk> 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 that are.
Defined by the SEC regulation G non-GAAP financial measures should be considered in isolation from or a substitute for information presented in compliance with GAAP.
Accordingly, or where 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 where our CEO and President Bob <unk> Bob.
Thanks, Matt Good afternoon, everyone and thank you for joining us today.
I'm excited to talk to you about our exciting things have been going on at aware after the market closed we announced our results for the third quarter ended September 32023, the copy of the press release is available on the Investor Relations section of our website.
Before reviewing our financial and operational highlights from the third quarter I wanted to give you a quick overview of aware and what makes us different.
That way those of you who are new to us have a better understanding of aware.
<unk> is a global biometric platform company that uses data science machine learning and artificial intelligence to tackle everyday business and identity challenges through biometrics, we're working to enhance trust in an increasingly connected world where mission of balance sheet security and user experience through our technology.
<unk> facilitate digital Onboarding authentication lifecycle management of the users biometric identity through proven responsible and trusted multimodal adaptive biometrics.
Over the last 30 years awareness proven the value of our offerings by continuing to be chosen by governments and commercial organizations alike for our experience in our heart and portfolio.
Our reputation in the biometric industry has earned his trusted spots with core government agencies in the United States, Canada, The UK, Germany, Australia and more in fact, we are a worldwide leader in biometric data orchestration for immigration border management.
We're also trusted by industry leaders like the largest banks in Brazil, and Turkey, among others for Onboarding and authentication further we have champion the responsible use of technology, specifically leveraging artificial intelligence and machine learning to create software that ethnically achieved demographic neutrality in equity.
Meaning we are purposely emphasize the need for treating all individuals equitably.
During research design development testing and refinement, we train our algorithms and some of the largest and most diverse data sets in the world. This has given us the number one position in minimizing practically eliminating bias based on age gender or race.
Unknown Executive: Good afternoon, and welcome to Aware's third quarter, 2023 conference call. Following managements from March, we'll open the call for questions. If you'd like to submit a question, you could do so at any time using the built-in-asked question feature in the webcast player.
Dependent lead tested and confirmed by NIST.
Also we believe in consent based biometric technology, meaning outside of the specific forensic applications in law enforcement and defense and intelligence only people who consent to leverage biometrics are users of our technology.
Unknown Executive: Before we begin today's call, I'd like to remind everyone that the presentation today contains four looking statements that are based on the current expectations of a Aware's management and involved inherent risks and uncertainties that could cause actual results to differ materially from those described. Let's nurse you please take note of the safe harbor paragraph that is included at the end of today's press release. This paragraph emphasize the major uncertainties and risk inherent in four-looking statements that management will be making today.
Additionally, our agnostic approach allows customers the flexibility they need to build on past investments rather than rip and replace a common industry practice that promotes waste.
Third we've earned our trusted status through a portfolio that mitigate threats in a search the integrity identity any future proof way.
Unknown Executive: Aware wishes to caution you that there are several 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 if any report on form 10K and quarterly reports on form 10Q. Any four-looking statements should be considered in light of these factors. Your caution not to place undue reliance upon any four-looking statements which speak only as of the date made.
Since we're doesn't outsource any biometric technology, we are the only biometric provider our customers need to work with.
And if a new attack vector emerges we are able to work directly to address it without needing to wait on a third party to upgrade their algorithms first or get re certified further we set the bar for lightness in the industry and a recent independent benchmarking study aware took the top spot in security for bolt impersonation and evasion detection for <unk>.
Unknown Executive: Although it may voluntarily do so from time to time, Awareness takes no commitment to update or revise the four-looking statements, whether as a result of new information, future events or otherwise except as required by applicable security laws. Additionally, this call contains certain non-gap financial measures that are defined by the SEC and regulation G. Non-gap financial measures should be considered in isolation from or substitute for information presented in compliance with GAP. Accordingly, Aware has provided reconciliation of these non-gap financial measures to the most directly comparable GAP measures in the company's earnings release issue today.
One of the presentation attack types, the only provider to do so.
Ranking top five in security and top 10 convenience across the strong majority of presentation attack types, where innovation, whereas the only provided with successfully found the balance of security and user experience with the ability to configure solutions appropriately for every use case.
And lastly, before I discuss the progress we've made to accelerate growth and drive greater scale footwear.
Unknown Executive: I'd 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.
I want to point out how important it is for us to offer future proof solutions.
Matt Glover: Now let's turn the call over to AwareCEO and President Bob Eckel. Bob. Thanks, Matt.
An organization's business requirements will evolve over time as will the external landscape <unk>.
Robert Eckel: Good afternoon everyone and thank you for joining us today. I'm excited to talk to you about our exciting things that be going on and aware. After the market closed, we announced our results for the Third Quarter and did September 30th, 2023. The copy of the press release is available on the Investor Relations section of our website.
Our offerings and platform can scale with customers adapt to changing environmental conditions risk profiles or consumer demands and anticipate and respond to future attack vectors. This positions us well to maintain the customer satisfaction needed to retain and expand the recurring revenue we've been building.
Robert Eckel: Before reviewing our financial operational highlights from the Third Quarter, I want to give you a quick overview of Aware and what makes us different. That way, those of you who are new to us have a better understanding of Aware. Aware is a global biometric platform company that uses data science, machine learning, and artificial intelligence to tackle everyday business and identity challenges through biometrics. We're working to enhance trust in an increasingly connected world through our mission of balancing security and user experience through our technology.
In fact since I joined the company at the end of 2019, we've grown recurring revenue, 83% or 16% annually from $5 4 million in 2019 to nearly $10 million over the trailing 12 month period ended September 32023.
We expect to end 2003 with more than $11 million in recurring revenue, providing solid visibility going into the new year.
Now with that background and context, I'd like to discuss our operational and financial achievements for the third quarter of 2023.
Robert Eckel: Our offerings facilitate digital onboarding, authentication and lifecycle management of the user's biometric identity through proven responsible and trusted multimodal adaptive biometrics. Over the last 30 years, Aware has proven the value of our offerings by continuing to be chosen by governments and commercial organizations alike for our experience in our heart and portfolio. Our reputation in the biometric industry has earned us trusted spots with core government agencies in the United States, Canada, the UK, Germany, Australia and more.
In Q3, we expanded our recurring customer base through our continuous efforts to enhance our market, leading technology and develop our partner ecosystem.
Q3 was a very strong quarter for wear and reflects the tremendous progress we've made driving profitable and more predictable growth.
This quarter, we generated $2 5 million in operating cash flow and continue building upon the foundation for future recurring revenue.
After working through several deals that were delayed over the past few quarters and months, we secured a $3 $4 million contract along with annual maintenance options has a five year value of up to $5 1 million.
Robert Eckel: In fact, we are a lower-blind leader in biometric data orchestration for immigration and border men. We're also trusted by industry leaders like the largest banks in Brazil and Turkey among others for onboarding in authentication. Further, we have championed the responsible use of technology, specifically leveraging artificial intelligence and machine learning to create software that ethically achieves demographic neutrality and equity. Meaning we have purposely emphasized the need for treating all individuals equitably. During research, design, development, testing, and refinement, we train our algorithms in some of the largest and most diverse data sets in the world.
Which expands our footprint in the U S government as well as us beginning to recognize revenue from the five year $5 million contract, we secured with our largest <unk> customer in Q2.
Both contracts reflect the trust, leading government agencies, placing us and when combined with our new aware avis contracts are expected to contribute more than $1 $5 million to our annual recurring revenue.
Additionally, our partner focus selling motions have enabled us to reduce our selling costs, while increasing new business conversion at an accelerated pace and.
Robert Eckel: This has given us the number one position in minimizing practically eliminating bias based on age, gender, or race, as independently tested and confirmed by NIST. Also, we believe in consent based biometric technology, meaning outside of specific forensic applications and law enforcement and defense and intelligence, only people who consent to leverage biometrics are users of our technology. Additionally, our agnostic approach allows customers the flexibility they need to build on past investments rather than rip and replace a common industry practice that promotes waste.
In fact during Q3, we had four new accounts go live and signed two new contracts with our partners for where I D.
Our strong third quarter performance reflects our continued efforts to increase <unk> and drive sustainable future growth, Greg will walk you through our key customer wins and progress on our go to market initiatives in more detail, but I wanted to touch on a few more highlights first after emphasizing the development of our customer success team over the past few quarters, we're excited to find.
We have a formal partnership program in place.
Whereas a strong commitment to partner success, and we look forward to directly collaborating with our partners to convert the growing market demand into more wallet share for us and our partners.
Robert Eckel: Third, we've earned our trusted status to a portfolio that mitigates threats and asserts the integrity of identity in a future-proof way. Since where doesn't outsource any biometric technology, we are the only biometric provider our customers need to work with. And if a new attack vector emerges, we are able to work directly to address it without needing to wait on a third party to upgrade their algorithms first or get resertified. Further, we set the bar for liveliness in the industry in a recent independent NIST benchmarking study.
We are aware ABS offering delivered as intended and we believe the solution is found an excellent niche and underserved market.
We deployed we're able to three law enforcement agencies of which one is on prem into our cloud base of the three deployments one began producing recurring revenue in Q3 and the other two will begin producing recurring revenue in Q4.
In conjunction with an enhanced partner ecosystem, we also optimize where I'd to make it even more versatile secure and accessible by introducing facial identification capabilities and improving the back end functionality.
Robert Eckel: Aware took the top spot in security for both impersonation and evasion detection for one of the presentation attack types, the only provider to do so. Ranking top five in security and top ten in convenience across the strong majority of presentation attack types were evasion, where is the only provider who has successfully found the balance of security and user experience with the ability to configure solutions appropriately for every use case.
Now businesses of all size can easily incorporate our world class biometric authentication without changing their back end.
Furthermore, we added a developer hub to the platform, which encourages developers to experiment with where are these capabilities to help build brand affinity amongst the engineering and developer communities.
Robert Eckel: And lastly, before I discuss the progress we've made to accelerate growth and drive greater scale for where, I want to point out important it is for us to offer future-proof solutions. In organizations, business requirements will evolve over time as well the external landscape. Our offerings and platforms can scale with customers, adapt to changing environmental conditions, risk profiles or consumer demands, and anticipate and or respond to future attack vectors. This positions us well to maintain a customer satisfaction needed to retain and expand the recurring revenue we've been building.
Even though we are continuing to optimize where are these market.
It is important to note that aware it is opening doors across all our biometric solutions to high quality opportunities with large and recognizable brand names.
As I mentioned earlier, our technology is recognized as a top performer industry wide and most recently our pad algorithms were ranked number one in security for both personnel and evasion for presentation attack tight foray in the NIST feet benchmarking test.
Nowhere has also recently been named an industry catalyst enroll model into 2023 biometric digital identity Prism report.
Robert Eckel: In fact, since I joined the company at the end of 2019, we've grown recurring revenue 83% or 16% annually from 5.4 million in 2019 to nearly 10 million over the trailing 12 month period and its September 30, 2020. We expect to end 2023 with more than 11 million in recurring revenue, providing solid visibility going into the new year.
While we can't and don't plan to announce every contract that we have secured are working to secure whereas consistently winning business in competitive markets, our ability to anticipate market trends and adapt our award winning solutions to specific customer needs continues to contribute towards market leadership.
Robert Eckel: Now, with that background in context, I like to discuss our operational and financial achievements for the third quarter of 2023. In Q3, we expanded our recurring customer base through our continuous efforts to enhance our market leading technology and develop our partner. Ecosystem. Q3 was a very strong quarter for wear and reflects your tremendous progress with made driving profitable and more predictable growth. This quarter we generated 2.5 million operating cash flow and continued building upon the foundation for future recurring revenue.
Now before moving on to our financial performance I'd like to briefly address last week's 8-K filing.
As noted in the filing a warehouse streamline its financial organization de Barcelona is no longer with aware as part of this realignment we have promoted our corporate controller, David Traverse the principle financial officer, Dave.
Dave Barcelona was what to wear for over three years and we are very fortunate to have his leadership.
Cannot thank him enough for his contributions and wish him all the best in his future endeavors.
We have total confidence in David traverse fulfilling the financial leadership role.
Robert Eckel: After working through several deals that were delayed over the past few quarters and months, we secured a $3.4 million contract that along with annual maintenance options has a 5-year value of up to $5.1 million, which expands our footprint in the U.S, government as well as us beginning to recognize revenue from the 5-year $5 million contract we secured with our largest BIOSP customer Q2. Both contracts reflect the trust leading government agencies placing us and when combined with our new, aware Avis contracts are expected to contribute more than 1.5 million to our annual recurring revenue.
Some of you may recall, David from a previous earnings call when he stood in for de Barcelona.
David joined where three years ago, as vice President and corporate controller.
Got an extensive background in finance and public economy.
Year to joining aware, David was vice President and corporate controller at Sea change International and Vice President Finance and Chief Financial Officer, and ARTEL video systems. He has also worked as a certified public accountant et cetera public accounting firms. We may not track filed a 10-Q, one time and do not anticipate this change to impact our filing cadence.
Robert Eckel: Additionally, our partner-focused selling motions have enabled us to reduce our selling costs while increasing new business conversion and accelerated pace. In fact, during Q3, we had four new accounts go live and signed two new contracts with our partners for a wear ID. Our strong third quarter performance reflects our continued efforts to increase ARR and drive sustainable future growth.
Our investor relations activities.
Lastly, we are committed to exiting this year with neutral operating cash flow and continue to optimize our cost structure focus on maximizing our operating cash flow as we prepare an answer 2024.
I'll now turn the call over to David to walk us through our financial results for third quarter 2023.
Robert Eckel: Craig will walk you through our key customer wins and progress on our go-to-market initiatives in more detail, but I wanted to touch in a few more highlights first. After emphasizing the development of our customer success team over the past few quarters, we're excited to finally have a formal partnership program in place. Aware as a strong commitment to partner success, and we look forward to directly collaborating with our partners to convert the growing market demand into more wallet share for us and our partners.
David over to you.
Thank you Bob and good afternoon to everyone on the call.
Are you back here again with you today, turning to our financial results for the third quarter ended September 32023, total revenue was $6 4 million compared to $3 2 million for the second quarter of 2023 and $3 million for the same year ago period. The increase in total revenue was primarily due to higher software license sales in the period.
Q3, 2023 recurring revenue was $2 2 million, a $2 2 million recurring revenue was up 5% sequentially and 4% year over year.
Robert Eckel: Our wear Avis offering delivered as intended, and we believe the solution is found in excellent niche in the underserved market. We deployed a wear Avis to three law enforcement agencies of which one is on-prem and two are cloud-based. Of the three deployments, one began producing recurring revenue with Q3, and the other two would begin producing recurring revenue with Q4. In conjunction with an enhanced partner ecosystem, we also optimized a wear ID to make it even more versatile, secure and accessible by introducing facial identification capabilities and improving the backend functionality.
Operating cash flow for the quarter was $2 5 million compared to a usage of $2 2 million in the prior quarter and usage of $2 million in the same year ago period.
Looking at operating expenses, including the impact of one time events, our third quarter 2023 operating expenses of $5 6 million a decrease from $6 1 million in the prior quarter and up from 600000 in Q3 of last year.
Operating income for the third quarter of 2023 was 700000 compared to an operating loss of $2 9 million in the prior year quarter and operating income of $2 4 million in the same year ago period.
Robert Eckel: Now, businesses of all size can easily incorporate our low-class biometric authentication without changing their backend. Furthermore, we added a developer hub to the platform, which encourages developers to experiment with wear IDs capabilities to help build brand affinity amongst the engineering and developer communities. Even though we are continuing to optimize a wear ID's market fit, it's important to note that a wear ID is opening doors across all our biometric solutions, the high quality opportunities with large and recognizable brand names.
For the third quarter of 2023, GAAP net income totaled $1 1 million or <unk>.
<unk> per diluted share.
Yeah to a GAAP net loss of $2 7 million or 13 cents per diluted share in Q2 2023 <unk>.
Net income of $2 6 million or <unk> 12 per diluted share in Q3 last year.
Robert Eckel: As I mentioned earlier, our technology is recognized as a cop performer industry-wide, and most recently, our patio rooms were ranked number one in security for both impersonation and evasion for preservation attack type 4A in the NIST Fate Benchmarking Test. A wear has also recently been named an industry catalyst in role model in the 2023 biometric digital identity prison report. While we can't and don't plan to announce every contract that we've secured or are working to secure, a wear is consistently winning business in competitive markets. Our ability to anticipate market trends and adapt our award-winning solutions to specific customer needs continues to contribute to our market leadership.
Please note that operating expenses.
<unk> income and net income for Q3 of 2023 included an 800000 onetime gain related to our adjustment to the fair value of the contingent acquisition payment from our 2021 acquisition of fortress I D.
Net operating expenses operating income and net income of Q3 of 2022 included a $5 7 million onetime gain related to the sale of the company's building located in Bedford, Massachusetts in July of 2022.
Adjusted EBITDA for the quarter, which are reconciled to GAAP net income in our earnings release totaled 400000, which compares to adjusted EBITDA loss of $2 4 million in the prior quarter and a loss of $2 5 million in the same year ago period.
Robert Eckel: Now, before moving on to our financial performance, I'd like to briefly address last week's 8K filing. As noted in the filing, Aware has streamlined its financial organization. Dave Barcello is no longer with-aware. As part of this realignment, we have promoted our corporate controller, David Traverse, the principal financial officer. Dave Barcello was with-aware for over three years, and we are very fortunate to have his leadership. We cannot thank him enough for his contributions and wisdom all the best in his future endeavors.
Significant improvement.
<unk> EBITDA was primarily due to higher revenue.
Our balance sheet, we ended the quarter at $27 5 million in cash cash equivalents and marketable securities compared to $25 1 million at the end of the prior quarter.
We purchased 81 and 83 common shares of stock at an average price of $1 52 per share as part of our previously announced share buyback program.
Robert Eckel: We have total confidence in David Traverse fulfilling the financial leadership role. Some of you may recall David from a previous earnings fall when he stood in for Dave Barcello. David joined him where three years ago as Vice President and Corporate Controller. He's got an extensive background in Finance and Public Accounting. Prior to joining Aware, David was Vice President and Corporate Controller at SeaChange International. Vice President, Finance and Chief Financial Officer in our Tel Video Systems.
We believe repurchasing our common stock at certain valuation levels presents an attractive opportunity given our strong balance sheet and growth prospects.
As we exit 2023.
Supported by a strong and improving cash balance and no debt.
Our robust balance sheet enables us to evaluate every high ROI opportunity.
Robert Eckel: He has also worked as a Certified Public Accountant at several Public Accounting firms. We may not track the file to 10Q on time and do not anticipate this change to impact our finally cadence or investor relations activities.
Tangible to advance our strategic growth roadmap.
That completes my financial summary, I would now like to turn the call over to Craig to discuss the advances we made in our go to market strategy Greg.
Thanks, David it's great to be here with you all today as Bob discussed Q3 was a very strong quarter for aware, we continue to protect and scale our recurring revenue base through the implementation of a formal partner program further product enhancements and capabilities and capitalizing on the high quality opportunities in the pipeline.
Robert Eckel: Lastly, we are committed to exiting this year with neutral operating cash flow and continue to optimize our cost structure, focus on maximizing our operating cash flow as we prepare an answer to 2024.
David Traverse: I'll now turn the call over to David to walk us through our financial results for third quarter 2023. David, over to you. Thank you, Bob, and good afternoon to everyone of the call.
Building upon the foundation, we laid last quarter for future recurring revenue. We closed several deals that were previously pushed to the right, including the large multimillion dollar multi year U S. Federal government contract Bob mentioned earlier.
David Traverse: It's a pleasure to be back here again with you today. Turning to our financial results for third quarter ended September 30th, 2023. Total revenue was 6.4 million. It could be at 3.2 million for the second quarter of 2023 and 3 million for the same year or go period. The increase in total revenue was primarily due to higher software license sales in the period. For Q3 2023, recurring revenue was 2.2 million. The 2.2 million or recurring revenue was up 5% substantially and 4% year over year.
David Traverse: Operating cash flow for the quarter was 2.5 million compared to usage of 2.2 million in the prior quarter and usage of 2 million in the same year or go period. Looking at our operating expenses, including the impact of one-time events, our third quarter 2023 operating expenses were 5.6 million, a decrease from 6.1 million in the prior quarter and up from 600,000 in Q3 of last year. Operating income for the third quarter of 2023 was 700,000 compared to an operating loss of 2.9 million in the prior quarter and operating income of 2.4 million in the same year or go period.
After receiving a lot of positive feedback from our customers, we incorporated facial identification capabilities enhanced front end document capture and better processing functionality into aware I D and <unk>.
And to the back end support and user experience improvements, we included new mobile application frameworks flutter and react native.
The aware I'd platform now provides value for various use cases without compromising accessibility and improve security and user experience and provides various levels of technical access for developers as.
As Bob mentioned, we also debuted a developer hub, which is generating excitement for the platform and the developer community and providing easier access to development resources for our customers.
We also partnered with a reputable outside firm to harden aware Ids SaaS infrastructure to expand the potential reach of our previously announced partnership with software one.
We expect these changes will have a positive impact on our opportunities in the U S commercial market and Latin America as a whole.
David Traverse: For the third quarter of 2023, gap net income told 1.1 million or 5 cents per deluded share compared to a gap net loss of 2.7 million or 13 cents per deluded share in Q2 2023, gap net income of 2.6 million or 12 cents per deluded share in Q3 last year.
During Q3, we launched a formal partner program to accelerate adoption of our offerings and expand our global reach our partner ecosystem is built around three areas of focus to maximize the program's potential reach the first being transparency.
Providing greater clarity transparency around products roadmap pricing tiers and incentives for current and future partnerships are crucial to integrating our partners into the ecosystem rather than simply being a vendor.
David Traverse: Please note that operating expenses, operating income and net income for Q3 of 2023 included an 800,000 one-time gain related to our adjustment to the fair value of the contingent acquisition payment from our 2021 acquisition of Fortress ID and that operating expenses, operating income and net income of Q3 of 2022 included a 5.7 million one-time gain related to the sale of the company's building located in Bedford, Massachusetts in July of 2022. 2.
Along those lines. The second focus is education and Youre doing a formal survey with our partners and leveraging an outside consultant it became clear that not all of our partners had a clear understanding of everything aware offers which is why we opened our access to a library of product and marketing resources partners are now armed with our product guides sales Dax.
API guides et cetera, which has allowed them to be better educated in our solutions and has enabled them to be more effective sales agents.
David Traverse: Our adjusted EBITDA for the quarter, which we reconciled the gap net income in our earnings release, total 400,000, which compares the adjusted EBITDA loss of 2.4 million in the prior quarter and it lost the 2.5 million in the same year go period, the significant improvement in adjusted EBITDA was primarily due to higher revenue. Looking at our balance sheet, we ended the quarter at 27.5 million in cash, cash equivalence and marketable securities compared to 25.1 million at the end of the prior quarter.
Third piece of the pie so to speak is a co marketing approach, which entails regular internal communications such as attending trade shows together, assisting with marketing collateral and costs and helping with signage. We've done several webinars with our partners over the last few months on relevant topics to continue to showcase whereas thought leadership in.
The industry.
A great example of the evolution of our partner ecosystem is our relationship with your Quad recently, we sat at the same booth with them at the largest middle Eastern Technology Conference Guide tax.
David Traverse: We purchased 81,000 and 83 common shares of stock and an average price of $1.52 cents per share as part of our previous announced share buy back program. We believe we're purchasing our common stock at certain valuation levels, present an attractive opportunity given our strong balance sheet and growth prospects. As we exit 2023, we are supported by a strong and improving cash balance and no debt. Our robust balance sheet enables us to evaluate every high ROI opportunity that is potential to advance our strategic growth roadmap.
Since announcing the partnership in March this year, you're quite has been instrumental in expanding <unk> footprint in the middle East and they have grown from a system integrator to a product company as well the launch of our partner ecosystem now allows <unk> to leverage both their local market knowledge and presence and awareness marketing resources to broaden the reach of all our.
Solutions in the region.
With an ever improving product portfolio and formal partner ecosystem. We believe that we are well positioned to capitalize on the high quality opportunities flowing through our pipeline.
We're continuing to see strong demand on the government side in North America, and Europe and are working to close multiple deals with the U S. Federal government the confidence the U S. Government has in our fraud protection is translating into promising leads with prominent government agencies in Canada, the United Kingdom, Latam and the Middle East.
David Traverse: That completes my financial summary.
Craig Herman: I now like to turn the call over to Craig to discuss the advances we made in our go to the market strategy. Craig? Thanks, David.
Craig Herman: It's great to be here with you all today. As Bob discussed, Q3 was a very strong quarter for aware. We continue to protect and scale our recurring revenue base through the implementation of a formal partner program, further product enhancements and capabilities and capitalizing on the high quality opportunities in the pipeline. Building upon the foundation we laid last quarter for future recurring revenue, the close several deals that were previously pushed to the right, including the large multi-million dollar multi-year U.S, federal government contract Bob mentioned earlier.
Moreover, by leveraging these robust government relationships, we can accelerate our breakthrough into the U S. Commercial market. We've seen a recent uptick in interest on the commercial side for aware and have gained a lot of traction in the gaming space as well.
Latin America remains our strongest and most competitive market, especially Brazil, where we have multiple encouraging competitive opportunities. We're also deepened the selling process with several deals in Mexico, Chile, and other Latin American countries.
Craig Herman: After receiving a lot of positive feedback from our customers, we incorporated facial identification capabilities, enhanced front-end document capture and better processing functionality into aware ID. In addition to the back end support and user experience improvements, we included new mobile application frameworks, flutter and react native. The aware ID platform now provides value for various use cases. It is without compromising accessibility and improved security and user experience and provides various levels of technical access for developers.
Despite the geopolitical turmoil in the middle East, we remain optimistic about the demand and opportunities in Egypt, UAE and Jordan previously we were very bullish on our prospects in Israel and Iraq. However, considering recent events, we have consulted an outside source to gain a better understanding of how it will affect the market.
As we look forward my team's initiatives for Q4, and 2024 will evolve around securing aware ideas are a leader in our target markets as well as solidifying its market fit.
Craig Herman: As Bob mentioned, we also debuted of developer hub, which is generating excitement for the platform in the developer community and providing easier access to development resources for our customers. We also partnered with a reputable outside firm to harden aware ID's SaaS infrastructure to expand the potential reach of our previously announced partnership with software 1. We expect these changes will have a positive impact in our opportunities in the U.S, commercial market and Latin America as a whole.
Building upon and generating additional net momentum amongst our government customers driving incremental revenue from the commercial side and closing out our pipeline.
Now I would like to turn the call back to Bob for more color on our key business drivers Bob.
Thanks, Craig building upon the foundation, we laid over the past few quarters, we have generated meaningful cash flow and recurring revenue in Q3, where our efforts and new contract structure and our newly secured and expanded customer base.
Craig Herman: During Q3, we launched a formal partner program to accelerate adoption of our offerings and expand our global reach. Our partner ecosystem is built around three areas of focus to maximize the program's potential reach, the first being transparency, providing greater clarity, transparency around products, road map, pricing tiers and incentives for current and future partnerships are crucial to integrating our partners into the ecosystem rather than simply being affected. Senator. While in those lines, the second focus is education.
Through the continuous evolution of our technology and the launch of our formal partner program. We continued to leverage our customer relationships to optimize spending drive recurring revenue and accelerated adoption for our SaaS based platform.
I'm proud of the revenue team and their efforts that have led to the highest quarterly revenue since Q2 of 2016 and the highest level of quarterly operating cash flow since Q4 of 2018.
Craig Herman: After doing a formal survey with our partners and leveraging an outside consultant, it became clear that not all our partners had a clear understanding of everything aware offers, which is why we opened our access to our library of product and marketing resources. Partners are now armed with our product guides, sales decks, API guides, etc., which has allowed them to be better educated in our solutions and has enabled them to be more effective sales agents.
Looking at the remainder of the year, we are increasingly confident in our ability to achieve or exceed our financial goals.
Which includes growing total revenue by 15% in 2023 and to exit the year with neutral operating cash flow.
Which means we manage both inflows and outflows towards profitability, while taking into consideration seasonal timing of cash outlays.
Craig Herman: The third piece of the pie, so to speak, is a co-marketing approach, which entails regular internal communications such as attending trade shows together, assisting with marketing collateral and costs and helping with signage. We have done several webinars with our partners over the last few months on relevant topics to continue to showcase Aware's thought leadership in the industry.
Our strong performance this year, and especially Q3, we're confident we can meet or exceed our cash flows and believe we are well positioned to continue ramping up recurring revenue and driving sustained growth.
We're excited for where its future and appreciate everyones continued support with the.
That we are ready to open the call for questions. Matt Please provide the appropriate instructions.
Craig Herman: A great example of the evolution of our partner ecosystem is our relationship with the Euclod. Recently, we sat at the same booth with them at the largest Middle Eastern Technology Conference, Guy Text. Since announcing the partnership in March this year, Euclod has been instrumental in expanding Nobby's footprint in the Middle East, and they have grown from a system integrator to a product company as well. The launch of our partner ecosystem now allows Euclod to leverage both their local market knowledge and presence and Aware's marketing resources to broaden the reach of all our solutions in the region.
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.
David what was the recurring revenue for the quarter, how much of that was from subscriptions versus maintenance.
All right. Thanks, Matt recurring revenue for the quarter was $2 2 million.
With $1 $8 million of that coming from maintenance and the rest of that from our subscription based revenue.
Thanks, David.
Craig Herman: With an ever-improving product portfolio and formal partner ecosystem, we believe that we are in well-positioned to capitalize on the high-quality opportunities flowing through our pipeline. We are continuing to see strong demand on the government side in North America and Europe, and are working to close multiple deals with the U.S, federal government. The confidence the U.S, government has in our fraud protection is translating into promising leads with prominent government agencies in Canada, the United Kingdom, Latin, and the Middle East.
From the gaming space, what other markets on the commercial side are you seeing increased interest in.
Sure. Thanks, Matt.
We're seeing a lot of opportunity in online gambling education workforce management.
Healthcare and financial services.
Talked about in the past, we're continuing to leverage our government relationships.
To gain market share in new geographies and expand our commercial use cases.
An example of this is leveraging our strong foundation in the Turkey, Turkey financial sector.
Craig Herman: Moreover, by leveraging these robust government relationships, we can accelerate our breakthrough into the U.S, commercial market. We've seen a recent uptick and interest on the commercial side for Aware and have gained a lot of traction in the gaining space as well. Latin America remains our strongest and most competitive market, especially Brazil, where we have multiple encouraging competitive opportunities. We are also deep in the selling process with several deals in Mexico, Chile, and other Latin American countries.
We've been able to streamline our breakthrough into North Africa, and so this is really accelerated our expansion in the middle East.
Thanks, Greg David another one for you with a strong balance sheet what are your capital allocation plans.
Yes, we ended the quarter with $27 $5 million in cash cash equivalents in marketable securities.
No debt.
We're continuing to capitalize on the higher interest rates as well as our previously announced share repurchase program.
Craig Herman: Despite the geopolitical turmoil in the Middle East, we remain optimistic about the demand and opportunities in Egypt, UAE, and Jordan. Previously, we were very bullish on our prospects in Israel and Iraq. However, considering recent events, we have consulted an outside source to gain a better understanding of how will affect the market.
Moving into the remainder of 2023, and then 'twenty 'twenty four for maintaining where our goal is to maintain a robust cash position that will enable us to evaluate strategic opportunities with potential and maximize shareholder value and drive scale.
Bob a question for you can you give some color as to why you chose to eight principal financial officer as opposed to a chief financial Officer.
Craig Herman: As we look forward, my team's initiatives for Q4 in 2024 will evolve around securing aware ideas of our leader in our target markets, as well as solidifying its market fit, building upon and generating additional momentum amongst our government customers, driving incremental revenue from the commercial side and closing out our pipeline.
Sure Matt.
Obviously this is not a traditional management structure for most public companies, but I feel and we feel that it aligns well with our current organizational scale.
Also our needs.
Well with our cost optimization initiatives that we've been on so promoting David principal financial officer allows us to reduce cost without compromising our ability to achieve our financial and operational goals.
Robert Eckel: Now, I would like to turn the call back to Bob for more color on our key business drivers. Bob? Thanks, Craig. Building upon the foundation we've laid over the past few quarters, we've generated meaningful cash flow and recurring revenue with Q3 to our efforts in new contract structure in our newly secured and expanded customer base. Through the continuous evolution of our technology and the launch of a formal partner program, we continue to leverage our customer relationships to optimize spending, drive recurring revenue, and accelerate adoption for our SaaS-based platform.
And also haven't streamline financial team aligns with our strategic growth and cash plans and.
Say it again, David has done a fantastic job as our corporate controller.
Last three years.
And we feel is the right person for the position.
Thanks, Bob.
A couple of questions here, we've received some questions looking for more details around Dave Barcelona departure, specifically of severance is owed and if any violations legal proceedings or items of consequence transpired or are pending.
Robert Eckel: A proud of the revenue team and the efforts that have led to the highest quarterly revenue since Q2 of 2016, in the highest level of quarterly operating cash flow since Q4 of 2018. Looking at the remainder of the year, we are increasingly confident in our ability to achieve or exceed our financial goals, which includes growing total revenue and ARR by 15% in 2023, and to exit the year with neutral operating cash flow, which means we manage both inflows and uploads towards profitability while taking the consideration seasonal timing of cash-on-lays.
I'll take that one.
<unk> de Barcelona departure from the company is not the result of any dispute or disagreement on any matter as Bob mentioned earlier, we're thankful for all of these leadership during these past three years.
We do anticipate incurring some onetime severance costs, which will be reflected in our Q4 and full year 2023 results.
However, we still remain on track to exit the year with neutral operating cash flow.
Robert Eckel: With our strong performance this year and especially Q3, where confident we can feature, exceed our cash goals, and believe we are well positioned to continue ramping up recurring revenue and driving sustained growth. We're excited for Aware's future and appreciate everyone's continued support.
Thanks, David.
Question for Craig over the past couple of quarters, you've announced a few product enhancements how are you picturing the evolution of aware its technology.
Sure.
Whereas technology is primarily driven by our ability to both predict and adapt to the market's needs right. Now we are focused on three trends in this market. The first being increased adoption of cloud based solutions to cross platform mobile support and finally greater interest in deep learning and AI by focusing on these three.
Matt Glover: With that, we are ready to open a 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 in the webcast player. Please hold while we populate the questions.
Areas, we can tailor our technology to be easily and rapidly deployable for any emerging use case or changes in the market.
Matt Glover: David, what was the recurring revenue for the quarter? How much of that was from subscriptions versus maintenance? Thanks, Matt.
Following the pandemic you know digital crime became more advance and widespread.
David Traverse: The current revenue for the quarter was 2.2 million, with 1.8 million that coming from maintenance and the rest of that from our subscription-based revenue. Thanks, David.
Sorry.
Thanks, Craig another one for you you mentioned in previous calls that you are focused on growing the commercial side of the business what progress have you made.
Craig Herman: Apart from the gaming space, what other markets on the commercial side are you seeing increased interest in? Sure, thanks, Matt. We are seeing a lot of opportunity in online gambling, education, workforce management, healthcare and financial services.
Okay.
Yes.
So.
As we talked about earlier.
We're a strong reputation in the government space has been generating momentum for the company on the commercial side the confidence government agencies, especially those in larger governments like the U S and Europe.
Craig Herman: As we talked about in the past, we're continuing to leverage our government relationships to gain market share and new geographies and expand our commercial use cases. An example of this is leveraging our strong foundation in the turkey financial sector. We've been able to streamline and our breakthrough into North Africa. This has really accelerated our expansion in the Middle East. Thanks, Greg.
Our technology is starting conversations with larger more recognizable brands, which we can then leverage to accelerate our breakthrough into the commercial space.
Next question, Bob There was a significant improvement in the operating cash flow compared to last year what drove this.
Well.
David Traverse: David, another one for you, with a strong balance, what are your capital allocation plans? Yeah, we ended the quarter with 27.5 million cash, cash equivalent to market share and no debt. We're continuing to capitalize on the high interest rates, as well as our previously known shared repurchase program.
Thanks, Matt I think this improvement in cash flow really it boils down to our persistent execution of our growth strategy and our cost structure optimization efforts, we've been working on optimizing our costs.
As you know and we continue to rapid ramp adoption for all the solutions.
Really driving for leaner operational model.
David Traverse: Moving into the rear end of 2023 and then 2024, we're making our goals to maintain a robust cash position that will enable us to evaluate strategic opportunities with potential to maximize your value and drive scale.
Through our recent product enhancements, Greg was talking about earlier and we've been talking about in the press releases.
And the launch of our formal partnership ecosystem, we've really expanded our technologies use cases, it made it more accessible to more of the population.
Unknown Executive: I have a question for you.
Robert Eckel: Can you give some color as to why you chose to appoint a principal financial officer as opposed to a chief financial officer? Sure, Matt. Obviously, this is not a traditional management structure for most public companies, but I feel and we feel that it lines well with our current organizational scale, also our needs and it well with our cost optimization initiatives that we have known on. So promoting David to principal financial officer allows us to reduce costs without compromising our ability to achieve our financial and operational goals.
So the upgrades we rolled out this year to know me and aware I'd enabled our partners and sales team to go to market with more versatile.
Cure easy to use solutions and that resulted in increased sales and upselling.
Additionally, the debut of our formal partner ecosystem and pricing tiers now allows organizations of all sizes from startups to global enterprises to adopt <unk> technology.
And lastly, our partnership program really maximizes the potential reach of our current and future partnerships without significantly increasing our go to market costs.
Robert Eckel: And also having streamlined financial team aligns with our strategic growth and cash plans. And you know, I'll say it again, David is done a fantastic job as our corporate controller over the past three years and we feel he's the right person for the position. Thanks Bob Moana.
Thanks, Bob.
Unknown Executive: Combine a couple questions here.
Our next question aware spoke with the CIO of Banco de <unk> of all that identity weak America last month, how are you.
This partnership evolved over the years and what impact is it relationship add in terms of other opportunities for aware.
Yeah.
David Traverse: We've received some questions looking for more details around Dave Barcelot's departure, specifically if Severance is owed and if any violations legal proceedings or items of consequence transpired or are pending. I'll take that one. Dave Barcelot's departure from the company is not the result of any dispute or disagreement on any matter.
Sure.
<unk> Banco de <unk> of all it was one of the pioneers in the Brazilian financial sector to incorporate biometrics and has for the past seven years, they've used nuomi to validate account access and credit applications for their customers.
Since deploying Nuomi. The bank has had very low levels of fraud, even with the number of transactions increasing nearly nearly tenfold in the last five years and the recent evolution of criminal activity.
David Traverse: As Bob mentioned earlier, we're thankful for all of Dave's leadership during these past three years. We do anticipate incurring some one time Severance costs, which we reflected in our Q4 employee or 2023 results. However, we still remain on track to exit the year with due to operating cash flow. Thanks David.
Digital crimes become more advanced and widespread throughout Brazil.
<unk> became an integral part of everyday life. This increase of online fraud, and Digitization has created opportunities for awareness gain market share in sectors like e-commerce sporting events et cetera Mauro.
Craig Herman: Question for Craig. Over the past couple quarters, you have announced a few product enhancements. How are you picturing the evolution of Ouer's technology? Sure. Ouer's technology is primarily driven by our ability to both predict and adapt to the market's needs. Right now, we are focused on three trends in this market. The first being increased adoption of cloud-based solutions to cross-platform mobile support and finally greater interest in deep learning and AI. By focusing on these three areas, we can tailor our technology to be easily and rapidly deployable for any emerging use case or changes in the market.
Moreover, aware success, the awarding of new malware designed to attack banks like Banco de <unk> could translate into additional opportunities within the global financial sector is the software is now being exported to the United States and Europe.
For anyone that's interested that you can watch the interview between our Latam General manager and the Banco de <unk> CIO Unawares Youtube channel.
I would recommend.
Checking out our Youtube channel, we continue to build on it it is a big piece of our focus.
From a marketing perspective, as we as we continue to build out different ways to message our audiences and our prospects.
Craig Herman: Finding the pandemic, you know, Visual Crime became more advanced and widespread. Thanks, Craig.
Thanks, Craig.
Feedback are you receiving from customers regarding aware I'd or your other solutions.
Craig Herman: Another one for you. You've mentioned in previous calls that you're focused on growing the commercial side of the business. What progress have you made?
Sure.
Feedback from our clients around where it is very focused on two things the ease of use and the breadth of the offering on the heels of our latest release customers and prospects are using aware I'd to replace multiple technologies and improve the user experience and their app or online presence.
Craig Herman: Yes. So as we talked about earlier, you know, Ouer's strong reputation in the government space has been generating momentum for the company on the commercial side. The confidence government agencies, especially those in larger governments like the US and Europe have in our technology is starting conversations with larger, more recognizable brands, which we can then leverage to accelerate our breakthrough into the commercial space.
The addition of documentation authentication with cutting edge AI, driven phase Leiden is delivering a better more secure user experience. The speed of deployment has gone from months to days, so that customers can deploy test and iterate with very little assistance <unk> developer resources.
Robert Eckel: Next question, Bob, there was a significant improvement in operating cash flow compared to last year. What drove this? Well, you know, thanks, Matt. I think this improvement in cash flow really boils down to our persistent execution of our growth strategy and our cost structure optimization efforts. We've been working on optimizing our cost as you know, and we continue to ramp adoption for all the solutions and really driving for a linear operational model.
David a question for you why was the company not more aggressive in buying back in its buyback program.
Yeah. Thanks, Matt So as mentioned earlier, we do believe in buying back our stock and Ed can be attractive use of capital. However, we are eliminated based on NASDAQ rules of how much we can buyback based on historical trading volumes.
Robert Eckel: Through our recent product enhancements, Craig was talking about earlier and we've been talking about in the press releases. In a launch of our formal partnership ecosystem, we've really expanded our technologies use cases and made it more accessible to more of the population. So the upgrades we've rolled out this year to know me and Ouer ID enabled our partners and sales team to go to market with more versatile, secure, easy to use solutions, and that resulted in increased sales and upselling.
Thanks, David at this time. This concludes our question and answer session. If your question wasn't answered. Please E mail <unk> IR team at AWS.
Dash <unk> Dot Com I would now like to turn the call back over to Bob for closing remarks.
Yes, I'd like to thank all of you for joining today's call and also of course, thank our employees partners shareholders for the continued support that they provide us.
And as a reminder.
You may learn more about our strategy and investor presentation, that's available on our website.
Robert Eckel: Early. Additionally, the view of our formal partner ecosystem in pricing tiers now allows organizations of all sizes from startups, to global enterprises, to adopt a whereas technology. And lastly, our partnership program really maximizes the potential reach of our current and future partnerships without significantly increasing our go-to-mart costs. Thanks, Bob.
And we look forward to updating you on <unk> progress on our next call Matt over to you.
Thanks, Bob I'd like to remind everyone that a recording of today's call will be available for replay via a link in the investors section of the company's website.
Thank you for joining us today for whereas third quarter 2023 conference call you may now disconnect.
Craig Herman: Our next question. Aware spoke with the CIO of Banco-Dake of All at Identity Week, America last month. How has this partnership evolved over the years and what impact has the relationship had in terms of other opportunities for aware?
Robert Eckel: Sure. You know, Bank of Dake of All was one of the pioneers in the Brazilian financial sector to incorporate biometrics and has for the past seven years, they've used Nomi to validate account access and credit applications for their customers. You know, since deploying Nomi, the bank has had very low levels of fraud, even with the number of transactions increasing nearly, nearly tenfold in the last five years, and the recent evolution of criminal activity.
Robert Eckel: Digital became an integral part of everyday life. This increase in online fraud and digitization has created opportunities for aware to gain market share in sectors like e-commerce, sporting events, etc. Moreover, aware success toward a new malware designed to attack banks like Banco-Dake of All could translate into additional opportunities when they're in the global financial sector, as the software is now being exported to the United States and Europe.
Robert Eckel: You know, for anyone that's interested, you can watch the interview between our Latin General Manager and the Bank of Dake of All CIO on a whereas YouTube channel. In fact, you know, I would recommend, you know, checking out our YouTube channel. We continue to build on it. It is a big piece of our focus from a marketing perspective as we continue to build out different ways to message our audiences and our prospects.
Craig Herman: Thanks, Craig.
Craig Herman: What kind of feedback are you receiving from customers regarding aware ID or your other solutions? Sure. You know, the feedback from our clients around aware ID, very focused on two things, the ease of use and the breadth of the offering. You know, on the heels of our latest release, customers and prospects are using aware ID to replace multiple technologies and improve the user experience in their app or online presence. You know, the addition of documentation authentication with cutting edge AI driven phase liveness is delivering a better, more secure user experience. The speed of deployment has gone from months to days so that customers can deploy, test and iterate with very little assistance and or developer resources.
David Traverse: David, a question for you.
David Traverse: Why was the company not more aggressive in buying back in its buyback program? Thanks, Matt. So as mentioned earlier, we do believe in buying back our stock and can be attractive use of capital. However, we are limited based on NASDAQ rules of how much we can buy back based on historical trading volumes. Thanks, David.
Unknown Executive: At this time, this concludes our question and answer session. If your question wasn't answered, please email it. Where's IR team at AWRE at gateway-grp.com.
Robert Eckel: I'd now like to turn the call back over to Bob for closing remarks. Yeah, I'd like to thank all of you for joining today's call, and also, of course, thank our employees, partners, shareholders for the continued support that they provide us. And as a reminder, you may learn more about our strategy and investor presentation. That's available on our website. And we look forward to updating you on a worse progress on our ex-call.
Matt Glover: Matt, over to you. Thanks, Bob. I'd like to remind everyone that a recording of today's call will be available for replay via link in the investor section of the company's website.
Unknown Executive: Thank you for joining us today for a worse third quarter of 2023 conference call.
Unknown Executive: You may now disconnect.