Aware, Inc. (NASDAQ:AWRE) Q1 2024 Earnings Call Transcript

Aware, Inc. (NASDAQ:AWRE) Q1 2024 Earnings Call Transcript May 4, 2024

Aware, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Matt Glover: Good afternoon and welcome to Aware’s First Quarter 2024 Conference Call. Joining us today are the company’s CEO and President, Robert Eckel, Principal Financial Officer David Traverse, and Chief Revenue Officer, Craig Herman. Following their remarks, we’ll open the call to questions. [Operator Instructions] 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 Aware’s 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 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, 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, Aware undertakes no commitment to update or revise the forward-looking statements, whether because of new information, future events or otherwise, except as required by applicable securities laws.

Additionally, this call contains certain non-GAAP financial measures, as the term is defined by the SEC and Regulation G. Non-GAAP financial measures should not be considered in isolation from or as a substitute for financial information presented in compliance with GAAP. Accordingly, Aware has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure in the company’s earnings release issued today. I would 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 Aware’s CEO and President, Bob Eckel. Bob?

Robert Eckel: Thanks, Matt. Good afternoon, everyone, and thank you for joining us today. After the market close, we reported our results for the first quarter ended March 31, 2024. A copy of the press release is available in the Investor Relations section of our website. Before diving into our financial and operational highlights for the first quarter of 2024, I’d like to provide a brief overview of Aware and what sets us apart in the biometric industry. Aware is a global biometric identity platform company, leveraging advanced data science, machine learning and artificial intelligence to tackle complex business and identity challenges. Our mission is to enhance trust in an increasingly connected world by delivering innovative biometric technologies that strike the best balance between security and user experience.

Ultimately, at a high level, we help organizations improve business results through biometrics. For over 3 decades, Aware has been at the forefront of biometrics industry, earning the trust of governments and commercial entities worldwide. Our expertise in digital onboarding, authentication and life cycle management of biometric identities, coupled with our secure multimodal adaptive biometrics has solidified our position as a trusted partner. We take pride in our proven track record and comprehensive portfolio, which has enabled us to forge strong partnerships with core government agencies globally, including in the U.S., United Kingdom, Canada, Australia and Germany. Aware is widely recognized as a global leader in biometric data orchestration for border management and immigration.

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Q&A Session

Our cutting-edge solutions enable seamless integration of biometric technologies into existing systems and infrastructures, streamlining processes and enhancing security at critical entry and exit points. By leveraging our expertise in data management, identity verification and risk assessment, we empower governments to effectively manage their borders while facilitating legitimate travel and trade. Our industry-leading solutions are trusted by some of the largest banks in the world for their onboarding and authentication needs. We take pride in being at the forefront of responsible technological development by harnessing AI and machine learning, we have created biometric software offerings that ensure demographic neutrality in equity, underscoring our steadfast commitment to fair and impartial treatment of all individuals.

Our rigorous research, design, development, testing and refinement processes leverages some of the largest and most diverse datasets in the world to trainer algorithms. This meticulous approach is secured as the #1 position in minimizing and practically eliminating bias based on age, gender or race as independently tested and verified by NIST. We prioritize consent-based biometric technology, ensuring individuals only use our solutions if they expressly consented except in specific forensic law enforcement, defense and intelligence applications. Our agnostic approach provides customers with the flexibility to build upon existing investments rather than resorting to costly replacements, a prevalent industry practice often resulting in unnecessary waste.

Our trusted status is further solidified by a comprehensive portfolio that addresses threats, and upholds identity integrity in a future-proof manner. Aware does not outsource any biometric technology, serving as the sole provider for all our customers. This enables us to swiftly address emerging attack vectors without relying on third parties for upgrades or recertifications. Aware leads the industry in liveness detection as demonstrated by our top ranking in the independent NIST benchmarking study. We have achieved the #1 spot in security for both impersonation and evasion detection for one of the presentation attack types, the only provider to do so. Furthermore, Aware ranks top 5 in security and top 10 and convenience across most presentation attack types for evasion, making us the only provider who has successfully struck the balance between user experience and security with the ability to configure solutions appropriately for every use case.

Finally, our platform and offerings are engineered to effortlessly scale with customers, adapt to changing environmental factors, risk profiles and consumer demands as well as proactively tackle future challenges. This allows us to uphold the level of customer satisfaction required to retain and grow the recurring revenue base we have diligently cultivated. Now that you have a clear picture of Aware and our offerings, let’s dive into our operational financial results for the first quarter of 2024. After a record-breaking 2023, our Q1 results underscore our continued focus on optimizing our core structure, leveraging our partner ecosystem and enhancing our go-to-market strategy to drive recurring revenue growth. Building upon our strategic cost optimization initiatives implemented throughout 2023 and in Q1 of 2024, we have significantly streamlined our cost structure and reduced our revenue breakeven point.

In Q1, we drove an 8% or $0.6 million year-over-year decrease in operating loss. We anticipate continued improvement compared to our quarterly operating expense run rate in 2023, as demonstrated in the first quarter of 2024. Our commitment to enhancing our operational structure and customer success initiatives is producing sustained improvements reflected in our Q1 performance. We continue expanding our recurring revenue customer base, resulting in a 3% year-over-year increase in both total revenue and recurring revenue. A large driver of this revenue was the 18% increase in subscription maintenance revenue related to contracts secured in Q3 of 2023 as well as our sustained momentum within the government space. Craig and his team have built a solid foundation for future scalability by securing strategic partners and valuable clients.

I’ll let him provide more details on their success this quarter, but I’d like to highlight a few key customer wins. During Q1, we successfully onboarded several new customers in Latin America, like Imply and OpenPass as well as expanding our use cases with existing customers such as a major federal government agency and a leading Turkish bank. We expect these awards to meaningfully contribute to the ongoing expansion of our recurring revenue base. As mentioned in prior quarterly updates, we do not plan to announce every contract we’ve secured or currently working on. However, it’s important to note that Aware’s advanced technology and strong partnerships are consistently generating new and exciting opportunities in competitive markets.

While there may be some quarter-to-quarter fluctuations, we maintain a healthy pipeline with promising opportunities in our backlog. Furthermore, we’ve cultivated a solid foundation of recurring revenue that acts as a stabilizer, helping to mitigate the impact of these fluctuations and laying a strong foundation for future growth. Before discussing our initiatives for 2024, I’ll turn the call over to David to take us through our financial results for the first quarter. David, over to you.

David Traverse: Thank you, Bob, and good afternoon, everyone. Turning to our financial results for the first quarter ended March 31, 2024. Total revenue for the first quarter was $4.4 million compared to $4.3 million in the same year ago period. The 3% year-over-year increase was largely due to higher software maintenance revenue related to contracts awarded in Q3 of 2023. Recurring revenue for Q1 2024 was $3.2 million or 71% of total revenue and a 3% increase from the prior year quarter. Looking at our operating expenses, our first quarter 2024 operating expenses were $5.7 million, an 8% year-over-year decrease compared to $6.2 million in Q1 of last year. Operating loss for the first quarter of 2024 improved approximately 32% year-over-year to $1.3 million compared to an operating loss of $1.9 million in the same year ago period.

For the first quarter of 2024, GAAP net loss totaled $1 million or $0.05 per diluted share, a 30% improvement with a GAAP net loss of $1.6 million or $0.07 per diluted share in Q1 of last year. Our adjusted EBITDA loss for the quarter, which we reconciled the GAAP net income in our earnings release totaled $1 million, which compares to a loss of $1.4 million in the same year ago period. The year-over-year improvement in net loss and adjusted EBITDA was primarily due to continued lower operating expenses. Looking at our balance sheet, cash, cash equivalents and marketable securities totaled $28.5 million as of March 31, 2024. This compares to $30.9 million as of December 31, 2023. The decrease is in line with our expectations and is primarily due to our operating loss as well as timing of collections of accounts receivable at year-end and in addition to traditional payments made in the first quarter.

As we move through 2024, we’re backed by a strong balance sheet and cash position, offering us the flexibility to evaluate any high ROI opportunities that have the potential to accelerate our growth roadmap. Our robust financial standing provides us with the resources necessary to explore strategic initiatives and make prudent investments to drive further innovation and market expansion. We remain committed to carefully evaluate any opportunities that align with our long-term vision. Rest assured, we will approach any such opportunities with the same rigor and diligence that have enabled us to reach this point. Our focus remains steadfast on driving profitability, expanding our recurring revenue base and delivering exceptional value to our shareholders over the long-term.